UK Trade & Investment

International Business Strategies, Barriers & Awareness Monitoring Survey

Research Report

October 2008

JN: 4144 Contents

01. Executive Summary ........................................................................................................ 1 1.1 Introduction ........................................................................................................... 1 1.2 Summary Results ................................................................................................. 2

02. Introduction .................................................................................................................. 9

03. Research Objectives .................................................................................................... 10

04. Methodology ................................................................................................................ 11 4.1 Coverage .............................................................................................................. 11 4.2 Sample Design ..................................................................................................... 11 4.3 Questionnaire Design .......................................................................................... 12 4.4 Fieldwork ............................................................................................................. 12 4.5 Weighting ............................................................................................................. 13

05. Modes Of Internationalisation .................................................................................... 15 5.1 Usage - Types ...................................................................................................... 15 5.2 Usage - Number ................................................................................................... 24

06. Profile .......................................................................................................................... 26 6.1 Age of Business .................................................................................................... 26 6.2 Size of Business (Employees) ............................................................................. 28 6.3 Size of Business (Turnover) ................................................................................ 30 6.4 Industry Sector ..................................................................................................... 32 6.5 Ownership ........................................................................................................... 35 6.6 Experience of Doing Business Overseas ............................................................ 36 6.7 Innovation ............................................................................................................ 50 6.8 Growth ................................................................................................................ 55 6.9 Business Planning ............................................................................................... 62 6.10 Displacement ...................................................................................................... 63 6.11 Usage of UKTI Trade Support Services ............................................................ 64

07. Drivers of Geographical Focus .................................................................................... 65 7.1 Drivers of Geographical Focus (Summary) ............................................................ 65 7.2 Drivers of Geographical Focus (Detailed) ............................................................. 69 7.3 Market Perceptions (Summary) ............................................................................ 74 7.4 Market Perceptions (Detailed) ............................................................................. 84

08. Drivers of Mode ............................................................................................................ 97 8.1 Drivers of Mode (Unprompted) ............................................................................ 97 8.2 Drivers of Mode (Summary) ................................................................................ 99 8.3 Drivers of Mode (Detailed) ................................................................................ 115

09. Barriers ......................................................................................................................... 134 9.1 Barriers (Summary) .............................................................................................. 134 9.2 Barriers (Detailed) ............................................................................................... 149 9.3 Business Needs For External Help ....................................................................... 161

10. Opportunities In Emerging & Fast Growing Markets ........................................ 162 10.1 Opportunities In Emerging & Fast Growing Markets ................................ 162 10.2 Impact of Economic Downturn .................................................................. 168

11. Awareness ........................................................................................................ 173

Annex A – Individual Markets (Sample Sizes)

Annex B - Questionnaire

1. Executive Summary

1.1 Introduction

This research gathers evidence about trends in UK businesses’ international business strategies; barriers hindering such business, and associated needs for external help as well as awareness of, and propensity to use, UKTI; and related issues.

In terms of the specific research aims, the study was required to provide robust evidence to:

- Identify UK business use of different modes of internationalisation and overseas market entry;
- Identify strategic business drivers of internationalisation mode;
- Identify drivers of geographical focus, including awareness of, and potential interest in, the emerging and high growth markets;
- Understand the barriers encountered by UK businesses in seeking to develop overseas business;
- Identify business needs for external help to overcome barriers and to address knowledge and skill needs associated with developing overseas business;
- Measure awareness of UKTI support.

This summary outlines the key findings from this study. Please note that all of the data in this report has been weighted by age of firm to reflect a disproportionate stratified sampling approach. 1.2 Summary Results

1.2.1 Modes of Internationalisation

Firms were asked which of a list of overseas business activities they had been involved in, over the last five years. Those not involved in any of these overseas activities were asked whether they were seriously considering starting to conduct overseas business via any of these routes in the next year, and only those responding positively to this question were invited to take part in the research. This group (the ‘considerers’) were asked to indicate which types of activities they were planning to become involved in.

Table 1.2.1 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’)

| Modes Used | Modes Considering | |------------|--------------------| | Selling | 98% | | Selling direct | 86% | 4% | | Selling through agents or distributors | 30% | 2% | | Contractual agreements | 7% | | | Licensing | 3% | 0% | | Franchising | 0% | 0% | | Other partnerships or joint ventures | 3% | 0% | | Overseas site | 11% | | | Production site | 2% | 0% | | Call centre | 0% | 0% | | Sales/service delivery site | 6% | 0% | | R&D facility | 0% | 0% | | Total | 100% | 100% |

Base: All respondents (Base) – (900)

Virtually all of the firms interviewed (who were either already internationalising, or considering doing so in the next year) were involved in the more traditional ‘selling’ modes of internationalisation; whether this be selling direct to businesses or individuals based abroad, or selling through agents or distributors. Only a small minority were involved in any other ‘contractual arrangements’ (such as licensing and franchising), but around 1 in 9 had overseas sites.

Interestingly, the pattern of usage of the various different modes of internationalisation is actually very similar for younger (internationalising) firms as it is for older firms. There is some evidence to suggest that innovative and IP active firms are more likely to be involved in a number of modes of internationalisation beyond direct sales, including selling through agents/distributors, licensing and other partnerships/JVs and operating an overseas site. Innovative firms are also more likely to import. 1.2.2 Drivers of Geographical Focus

The table below shows the proportions of firms scoring against each of 9 summary categories of drivers of geographical focus.

Table 1.2.2 Drivers of Geographical Focus (Summary)

| % scoring | Total | Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |--------------------|-------|------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Networks & serendipity | 81% | 80% | 84% | 95% | 100% | 91% | 86%| 100% | 90% | 87% | | | Independent analysis | 53% | 49% | 61% | 59% | 100% | 39% | 53%| 100% | 95% | 100% | | | Solely reactive | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | | Contacts | 81% | 82% | 77% | 95% | 100% | 95% | 62%| 26% | 85% | 26% | | | Practicalities | 62% | 62% | 63% | 68% | 50% | 65% | 43%| 0% | 47% | 75% | | | Language & culture | 84% | 84% | 82% | 82% | 50% | 91% | 72%| 26% | 83% | 64% | | | Risk & IP | 63% | 63% | 64% | 59% | 50% | 61% | 53%| 26% | 71% | 39% | | | Resources | 65% | X | X | X | X | X | 72%| 100% | 56% | 75% | | | Demand | 35% | 33% | 39% | 59% | 50% | 35% | 19%| 0% | 68% | 26% | | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

This analysis clearly highlights ‘contacts’ and ‘language & culture’ as key, alongside ‘networks & serendipity’ across all modes.

There is, however, some evidence to suggest some differences for those operating overseas sites, with ‘practicalities’ less important for this group but ‘demand’ more important.

Interestingly, the pattern in terms of drivers of geographical focus is very similar for firms within each of the three age groups(^1). There is some evidence to suggest that innovative firms (defined either through the main ‘innovative’ firms definitions or via IP activity) are more likely than those classified as ‘non-innovative’ to perceive difficulties with their chosen market in all areas. That said, they are also more likely to be driven by ‘independent analysis’ and to perceive the demand in this market as either ‘fairly’ or ‘very’ high. This is the case for innovation measured via the main ‘innovative firms’ definitions as well as through IP activity, and for young, technology intensive firms.

(^1) Firms aged up to 5 years, 5-10 years and more than 10 years. 1.2.3 Drivers of Mode

The table below shows the proportions of firms scoring against each of 8 summary categories of drivers of mode.

Table 1.2.3 Drivers of Mode (Summary)

| % scoring | Total | Mode | Own Site | |-----------|-------|------|----------| | | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | 'Meeting customer needs' | 68% | 73% | 49% | 50% | 100% | 60% | 19% | 26% | 97% | 62% | | 'ROI, cost & risk' | 68% | 66% | 73% | 87% | 0% | 60% | 53% | 26% | 95% | 62% | | 'Accessing partner capabilities & connections' | 84% | X | 85% | 87% | 100% | 69% | X | X | X | X | | 'Control of IP & product/service quality' | 58% | 67% | 20% | 41% | 50% | 5% | X | X | 90% | X | | 'Accessing locations of expertise' | 50% | X | X | X | X | X | 0% | 100% | 66% | 74% | | 'Non-analytical factors' | 50% | 50% | 55% | 51% | 50% | 47% | 0% | 0% | 56% | 38% | | 'Solely reactive' | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | None | 13% | 13% | 11% | 0% | 0% | 31% | 47% | 0% | 0% | 13% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

For those firms that have chosen to sell direct, the importance of ‘meeting customer needs’ is highlighted, alongside maintaining control of IP and product/service quality. For those electing to sell via agents or distributors, the capabilities and connections of the partner firm are highlighted as strong drivers of this choice. For those opting to enter into contractual arrangements the small base sizes make it difficult to draw robust conclusions, but the capabilities of the partner firm again appear to be important. Those operating their own overseas sales sites appear to be driven by similar considerations to those selling direct, namely ‘meeting customer needs’ as well as maintaining control of IP and product/service quality.

Across all modes, ‘ROI, cost & risk’ is highlighted as an important driver of choice of mode, a category that essentially addresses the issue of profitability and firms making money.

Interestingly, the pattern in terms of drivers of mode is very similar for firms within each of the three age groups. Whilst ‘meeting customer needs’ seems to apply to innovative and non-innovative firms alike, there is some evidence to suggest that innovative firms are slightly more likely to be driven by factors relating to ‘ROI, cost & risk’ and ‘accessing partner capabilities & connections’ than non-innovative firms. This finding, alongside the finding that innovative firms are more likely than those classified as ‘non-innovative’ to perceive difficulties with their chosen market in all areas could be interpreted as implying that innovative firms face greater challenges than non-innovative firms in the implementation of a successful internationalisation strategy, specifically in respect of success in commercial terms. This could be due to a number of factors, with the relative difficulty of the task of selling innovative products/services (in comparison with more straightforward, non-technical and ‘easy to explain and sell’ products/services) a possibility as well as a lack of commercial/marketing skills on the part of innovative firms. This is the case for innovation measured via the main ‘innovative firms’ definitions as well as through IP activity, and for young, technology intensive firms.

1.2.4 Barriers

Following difficulties encountered in previous studies in measuring barriers through direct questioning techniques, a projective questioning technique was employed for this research. This technique attempts to get over issues relating to the reluctance of firms to acknowledge barriers by asking them to talk about issues that other similar firms would face. The table below shows the proportions of firms scoring against each of 6 summary categories of barriers as well as the proportion scoring against any of these categories.

Table 1.2.4 Barriers (Summary)

| % scoring | Total | Mode | |-----------|-------|------| | | | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | At least one barrier ‘to a significant extent’ | 79% | 78% | 85% | 69% | 100% | 78% | 81% | 100% | 88% | 74% | | Legal & regulatory barriers | 42% | 40% | 42% | 50% | 50% | 39% | 71% | 100% | 54% | 61% | | Contacts barriers | 46% | 45% | 49% | 50% | 50% | 35% | 47% | 100% | 58% | 49% | | Information barriers | 21% | 20% | 25% | 31% | 50% | 0% | 42% | 100% | 22% | 13% | | Fixed costs barriers | 63% | 60% | 69% | 50% | 50% | 61% | 76% | 74% | 83% | 74% | | Language & cultural barriers | 26% | 24% | 29% | 36% | 50% | 22% | 47% | 100% | 27% | 36% | | Bias barriers | 21% | 18% | 30% | 14% | 50% | 30% | 28% | 26% | 22% | 49% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

The overall incidence of firms encountering barriers is similar across modes, with 79% of all internationalising firms reporting at least one significant barrier. As has been the case in past studies, fixed cost barriers and contacts barriers are highlighted amongst the most important, with the key point of difference between this and previous studies being that legal & regulatory barriers are highlighted as amongst the most important (with this being the case for all modes where sample sizes allow for reasonably robust analysis).

The ‘legal and regulatory’ category covers perceptions in relation to negotiating the legal and regulatory framework or standards, intellectual property protection and contract enforcement (as well as opinions on the extent to which the obtaining of work permits or visas is a barrier in the case of firms with overseas sites). A quarter of all firms indicated that negotiating the legal and regulatory framework or standards in their chosen market has been ‘fairly’ or ‘very’ difficult, with 15% reporting difficulties in respect of intellectual property protection. Around a fifth indicated that they perceived a ‘fairly’ or ‘very’ high risk in relation to ‘getting paid and enforcing contracts’. Whilst it appears to be the case that older firms are slightly less likely to report barriers at all, the pattern is similar across the three age groups (with ‘fixed costs’, ‘contacts’ and ‘legal and regulatory’ barriers the most prevalent). It is also the case that innovative and IP active firms are more likely to report barriers of all types. However, it should be noted that across all groups, it is ‘fixed costs barriers’, ‘contacts barriers’ and ‘legal and regulatory barriers’ that are again the most prevalent.

1.2.5 Opportunities In Emerging & Fast Growing Markets

The chart below shows firms’ opinions on opportunities in the priority fast growing markets. Please note that, of the Asian fast growing markets, only China and India were addressed individually, with the remainder covered under a single ‘other Asian markets’ category.

Opinions vary across the markets, from just 7% indicating that Mexico was a ‘good opportunity’ and 60% that they felt that this market was ‘unlikely’ to provide them with an opportunity, to 12% feeling that India was a ‘good opportunity’ and just 38% feeling that it was unlikely to provide them with an opportunity.

Overall, approaching half (45%) of internationalising firms are already doing business in at least one of the emerging/fast growing markets (with almost half of this group made up of small firms with less than 10 employees). The majority of the remainder see at least one market as either a good or possible opportunity. Only around 1 in 8 feel that none of these markets are likely to provide them with an opportunity.

It appears to be the case that the likelihood of a firm trading in these fast growing markets increases with both age and size, with younger and smaller firms more likely to see these markets as merely a ‘good’ or ‘possible’ opportunity (rather than already doing business there). That said, still as many as 40% of firms with less than 10 employees. employees are already doing business in at least one of the priority fast growing markets. Both non-innovative firms and those that are not IP active are more likely to feel that the priority fast growing markets are unlikely to offer them an opportunity and less likely to be doing business in them than ‘innovative’ and IP active firms.

Firms were asked whether their business had been ‘negatively affected by the apparent downturn in the US or UK markets over the last year’, and if so about whether this had prompted them to focus more on emerging or fast growing markets. Please note that fieldwork was conducted during August and early-September 2008.

Table 1.2.5 Impact Of Economic Downturn

| | Total | |--------------------------------------|-------| | Negatively affected by downturn | 42% | | Devoting more attention to fast growing | 18% | | Not devoting more attn to fast growing | 24% | | Not affected by downturn | 56% | | Total | 100% |

Base: All respondents (Base) – (900)

Overall, around two-fifths of internationalising firms mentioned that they had been affected, but less than half of this group (18% of all internationalising firms) mentioned that they were devoting more attention to emerging or fast growing markets as a consequence.

There is no consistent pattern by age of firm. However, there is some evidence to suggest that, perceptions at least, amongst non-innovative firms is that they are less likely to have been negatively affected by the downturn than innovative firms, however, there is no such difference evident by whether or not firms are IP active. 1.2.6 Awareness

Firms were asked to consider sources of information or advice that they are aware of that are available to help UK firms do business overseas, and then read out a list of UKTI products and services and asked to indicated whether or not they had heard of each one. As well as the list of 7 products and services, firms were also asked whether or not they had heard of 'UK Trade & Investment or UKTI' (prior to the interview).

Table 1.2.6 Awareness (UKTI & UKTI Products/Services)

| | Total | |------------------------|-------| | Aware (at least one) | 80% | | UKTI | 51% | | Overseas posts | 55% | | ITAs | 59% | | Passport | 34% | | EMRS | 22% | | ECR | 13% | | TAP | 26% | | OMIS | 26% | | Used (at least one) | 35% | | Total | 100% |

Base: All respondents (Base) (900)

Overall, around half (51%) of internationalising firms claimed that they had heard of UKTI, with awareness of both posts and ITAs slightly higher (at 55% and 59% respectively). Awareness of Passport was relatively high at 34%, with TAP and OMIS recognised by around a quarter of firms. Only around a fifth of internationalising firms indicated that they hadn’t heard of any of the products and services listed (or UKTI).

These results are consistent with those collected via the old awareness study, which this research has been designed to replace. The 2006 survey measured awareness of UKTI at 48% and had been showing a steady increase in awareness levels over the past few years. 2. Introduction

UK Trade & Investment (UKTI) commissioned this piece of research in order to gather evidence about trends in UK businesses’ international business strategies; barriers hindering such business, and associated needs for external help as well as awareness of, and propensity to use, UKTI; and related issues.

The study was designed with a view to the results being used to help inform UKTI policy development and other aspects of UK Government policy relating to international trade and investment and the ability of British business to optimise opportunities in global markets.

The survey was intended to complement evidence already available from other surveys of UK business, in particular:

- The Community Innovation Survey, which is nationally representative of firms with at least 10 employees, and captures some evidence about international aspects of innovation activity, including international partnerships and other linkages, as well as export activity;

- UKTI’s Performance and Impact Monitoring Survey (PIMS) of businesses who have used UKTI trade services, which also captures some contextual evidence about overseas business experience and aspects of strategy;

- UKTI’s annual survey of exporters who have not used UKTI trade services, which gathers evidence about some aspects of overseas business strategy as well as evidence about barriers to overseas business and associated needs for external help.

Whilst there is data on outward investment available from that collected by the Office of National Statistics, prior to this study there was no source of reliable quantitative data about internationalisation modes used by UK firms. The PIMS data suggests that the benefits derived from UKTI support may vary according to the different internationalisation modes. A key aim of this survey was therefore to begin to fill these gaps and to understand specifically whether there are issues facing these firms that are not being addressed within UKTI’s current portfolio of services.

This survey replaces the former annual UKTI awareness survey. It is envisaged that the study will be repeated annually, but with variation in some of the topics covered, so that annual monitoring with consistent data will be achieved where needed, as well as data captured on a wider range of issues at less frequent intervals. 3. Research Objectives

In terms of the specific research aims, the study was required to provide robust evidence to:

- Identify UK business use of different modes of internationalisation and overseas market entry, including among young innovation and technology intensive firms;

- Identify strategic business drivers of internationalisation mode, and how these may vary with increasing overseas business experience, and other business characteristics, including size and innovation activity, or with characteristics of the target overseas market;

- Identify drivers of geographical focus, including awareness of, and potential interest in, the emerging and high growth markets (as identified in UKTI’s 5 year strategy, published in 2006);

- Understand the barriers encountered by UK businesses in seeking to develop overseas business, both for new exporters and for firms seeking to enter new markets;

  - Subject to constraints of interview length, the research will also seek to identify how these vary by market entry or internationalisation mode, and across markets;

- Identify business needs for external help to overcome barriers and to address knowledge and skill needs associated with developing overseas business;

- Measure awareness of UKTI support.

Whilst this study aimed to build on the former annual UKTI awareness survey in terms of measuring awareness of UKTI support, it was effectively the first wave of a new piece of research. As such an important secondary objective was to build a robust and intelligent research design, both in terms of the sampling approach and the questionnaire, so as to establish the foundation for an annual monitoring survey that will provide consistent year-on-year survey evidence as well as address all of the current research objectives. 4. Methodology

The research was conducted via quantitative, CATI(^2) interviews, administered by a specialist team of business-to-business researchers with extensive experience of conducting similar studies with this type of audience.

4.1 Coverage

A total of 900 interviews were conducted with firms involved in overseas business activities covering the full range of internationalisation modes, including selling to overseas customers both directly and via agents or distributors, operating via contractual agreements and firms operating their own overseas sites. Whilst data was collected on import activity, only those firms also involved in other overseas business activities were selected for interview.

Whilst the majority of the firms interviewed (845 of the total 900) were involved in at least one of these forms of internationalisation at the time of the interview, a small number (55) were only planning to become involved in this type of activity (although this did have to be within the next year before they were included in the study). This latter group have been labelled ‘considerers’ in the analysis.

4.2 Sample Design

Since one of the key objectives of this research was to ensure coverage of firms doing overseas business via the full range of modes, and not just simply exporting in the traditional sense, the sample frame was built from a random sample of all businesses which was then screened to ascertain involvement in overseas business activity. This approach had the further advantage of allowing the inclusion of ‘considerers’ in the research.

The initial sample frame was sourced from a Dunn & Bradstreet-based list provided by Experian, with the sample stratified by age of firm. It was decided that a disproportionate sample design would be used, so that a roughly equal number of firms were interviewed that were aged up to 5 years, aged 6-10 years and aged more than 10 years (to allow for robust analysis by age group).

In order that the incidence within the sample frame of firms eligible for interview (i.e. engaging in international business activity) was kept to within sensible limits, an approach was taken to the construction of the initial sample frame whereby a small number of industry sectors with a very low proportion of firms expected to be involved in overseas business activity were excluded(^3). The exclusions were made on the basis of analysis of data from the Community Innovation Survey (CIS) on the incidence of exporting for individual industry sectors within each of the three age groups(^4). Due to sample size restrictions, this analysis only allows for exclusions at the level of 2-digit SIC codes. Thus, further ‘common sense’ exclusions were applied manually at the sample processing stage, for example the removal of sub-post offices from SIC code 64 (post and telecommunications).

(^2) Computer Assisted Telephone Interviewing. (^3) Sectors where the incidence of firms qualifying for interview was likely to be less than 1 in 5 were excluded from the sample frame. (^4) Based on analysis by Professor Richard Harris, University of Glasgow. Whilst both users and non-users of UKTI were included in the research, the sample lists were screened against lists of firms participating in the very recently conducted PIMS waves in an attempt to reduce the burden of research on individual businesses.

4.3 Questionnaire Design

Strong emphasis was placed on questionnaire design in the early stages of this project, with the importance of ensuring that the questionnaire was easily understandable, clearly worded, flowed logically, acceptable in terms of length and capable of delivering high quality data across all the areas necessary to answer the research objectives recognised throughout the design phase of the study. Given that this research covers areas that have not been covered in previous studies, it was felt that an initial qualitative phase was required to help inform the quantitative questionnaire design. This consisted of a total of 10 telephone depth interviews conducted by the project executives, with the initial interviews conducted using a discussion guide agreed following meetings with the UKTI project manager and project steering group, and a second tranche of interviews conducted using a revised discussion guide that incorporated findings from the initial qualitative interviews and further discussions with the steering group and UKTI project manager.

Following this qualitative phase the quantitative questionnaire was drafted, with a full ‘live’ pilot conducted on CATI prior to the main fieldwork. A copy of the final questionnaire is appended to this report.

4.4 Fieldwork

Main fieldwork was conducted between August and September 2008 at BMG Research’s telephone centre in Birmingham, with interviews lasting an average of 19 minutes.

The following table summarises the number of sample records selected for CATI, the approximate number of records lost due to screening-out or incorrect contact details, and the number of interviews completed along with the associated response and refusal rates.

| CATI SCREENING | | |-----------------------------------------------------|-------| | Selection for CATI | 16,753| | Unusable – no overseas business activity | 11,008| | Unusable – contact details incorrect | 1,299 |

| ACHIEVED INTERVIEWS / RESPONSE RATES | | |-----------------------------------------------------|-------| | Total useable sample | 4,446 | | Interviews achieved | 900 | | Response rate (%) | 20% | | Refusal rate (%) | 28% | 4.5 Weighting

All of the data presented in this report has been weighted to account for the disproportionate nature of the sample design (i.e. the disproportionate sampling by age of firm). The weighting regime draws on data from the 2006 Annual Small Business Survey on the profile of SME exporters (displayed below), with the data having been weighted to the profile shown.

Table 4.5.1 Weighting – By Age

| 2006 ASBS | Weighting | |-----------|-----------| | All SMEs | All Employers | | Up to 5 years | 20% | 19% | 19% | | 5-10 years | 19% | 18% | 19% | | More than 10 years | 61% | 63% | 62% |

In a number of sections of the questionnaire, firms involved in a number of forms of internationalisation are asked to focus on just one internationalisation mode. This mode is selected at random from those they are involved in. However, since certain modes are more likely to be employed by those already involved in other arguably ‘easier’ modes, when data collected on the basis of this one randomly selected mode is analysed at the total level, this should be accounted for by a further layer of weighting.

The table below and overleaf provides an analysis of the impact of each of the potential layers of weighting on the observed profile of firms in terms of overseas business experience, size and innovation as well as age.

Table 4.5.2 Weighting – Comparison Of Weighting Regimes

| Weighted | Unweighted | |----------|------------| | By Age Only | By Age & Mode | | Age: | | | | Less than 2 years | 6% | 4% | 4% | | 2-5 years | 25% | 15% | 16% | | 5-10 years | 32% | 19% | 19% | | 10-20 years | 19% | 31% | 31% | | More than 20 years | 18% | 31% | 30% | | Experience: | | | | Less than 2 years | 20% | 14% | 14% | | 2-5 years | 31% | 23% | 24% | | 5-10 years | 26% | 25% | 24% | | 10-20 years | 12% | 20% | 20% | | More than 20 years | 10% | 18% | 18% | | Size: | Unweighted | Weighted | Weighted | |---------------|------------|----------|----------| | | | By Age Only | By Age & Mode | | 0-9 | 56% | 51% | 50% | | 10-49 | 33% | 36% | 36% | | 50-99 | 5% | 5% | 5% | | 100-249 | 2% | 2% | 3% | | 250+ | 3% | 4% | 5% | | Innovative?: | | | | | Yes | 73% | 72% | 74% | | Yes (tighter defn) | 46% | 47% | 48% |

Since the results are similar whether or not this additional layer of weighing is applied, the view has been taken that this adds an unnecessary level of complexity to the analysis (to then have little or no impact on the results) and as such has not been applied to the data contained in this report. 5. Modes Of Internationalisation

5.1 Usage - Types

Firms were asked which of a list of overseas business activities (covering selling direct, selling through agents or distributors, licensing, franchising or other contractual arrangements and operating an overseas site) they had been involved in, over the last five years. Those not involved in any of these overseas activities were asked whether they were seriously considering starting to conduct overseas business via any of these routes in the next year, and only those responding positively to this question were invited to take part in the research. This group (the ‘considerers’) were asked to indicate which types of activities they were planning to become involved in.

The chart below shows usage (and consideration for ‘considerers’) of these overseas business activities, which summary figures shown for ‘selling’ (which includes selling direct and selling through agents or distributors), ‘contractual arrangements’ (which includes licensing, franchising and other partnerships or joint ventures) and ‘overseas site’ (which includes firms with overseas production sites, call centres, sales offices and R&D facilities). Also included is data on usage of importing.

Chart 5.1 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’)

Virtually all of the firms interviewed (who were either already internationalising, or considering doing so in the next year) were involved in the more traditional ‘selling’ modes of internationalisation; whether this be selling direct to businesses or individuals based abroad, or selling through agents or distributors. Only a small

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5 With checks included in the questionnaire to ensure that this was not simply importing through a UK-based intermediary. minority were involved in any other ‘contractual arrangements’ (such as licensing and franchising), but around 1 in 9 had overseas sites.

Those firms involved in ‘other partnerships or joint ventures’ or in some form of overseas site where asked to provide details of the purpose of the partnership/site.

Table 5.1.1 Main Purpose of Partnership/Site

| Mode | JVs & Other Partnerships | Overseas Sites | |-------------------------------------------|--------------------------|----------------| | Production | 21% | 22% | | Manufacturing | 21% | 22% | | Assembly | 9% | 0% | | Call centre | 7% | 2% | | Sales site | 68% | 61% | | Distribution/sales office | 49% | 38% | | After-sales office | 23% | 6% | | Service delivery | 35% | 17% | | Research, product or process development | 18% | 5% | | Other | 18% | - | | Total | 100% | 100% |

Base: All respondents (Base, Don’t know) – JVs/partnerships (32, 2%), Overseas site (103, 9%)

The majority of these partnerships/sites are sales sites (a categorisation which covers distribution/sales offices, after-sales offices and service delivery offices), with around 1 in 5 production sites (which covers manufacturing and assembly sites).

Those operating production sites, call centres and R&D facilities were asked whether or not they also sold any goods or services to customers in the market in question. Whilst the small base sizes must be borne in mind when interpreting these results, 5 of the 9 of firms operating overseas production sites, 1 of the 2 firms operating call centres and 2 of the 6 firms operating R&D facilities also sell direct to customers in that market. Firms with overseas sites were also asked to indicate how many sites it was that they had, with the following results.

Table 5.1.2 Number of Sites

| Overseas Sites | | |----------------|---| | None (considerers) | 7% | | One | 36% | | 2-5 | 35% | | 6-10 | 11% | | 11-20 | 7% | | 21-50 | 2% | | More than 50 | 2% | | Total | 100% |

Base: All respondents (Base, Don't know/Refused) – Overseas site (103, 1%)

Well over half of those with overseas sites indicated having more than one such operation, although for most the figure lies within the 2-5 banding.

The table below shows usage of the various different modes of internationalisation by age of firm.

Table 5.1.3 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Age Of Firm

| Age (Years Trading) | Up to 5 | 6-10 | More than 10 | |---------------------|---------|------|--------------| | Selling | 96% | 98% | 98% | | Selling direct | 90% | 93% | 89% | | Selling through agents/distributors | 29% | 29% | 34% | | Contractual arrangements | 7% | 6% | 7% | | Licensing | 3% | 2% | 3% | | Franchising | 1% | 1% | 0% | | Other partnerships or JVs | 5% | 2% | 4% | | Overseas site | 12% | 13% | 10% | | Own site - production | 2% | 2% | 3% | | Own site - call centre | 0% | 0% | 0% | | Own site - sales | 8% | 9% | 5% | | Own site - R&D | 1% | 1% | 0% | | Importing | 48% | 48% | 55% | | Total | 100% | 100% | 100% |

Base: All respondents (Base, Don't know) – Up to 5 (283, 0%), 6-10 (286, 0%), More than 10 (331, 0%) Interestingly, the pattern of usage of the various different modes of internationalisation is actually very similar for younger (internationalising) firms as it is for older firms.

The table below shows this data by firm size (measured via number of employees).

Table 5.1.4 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Size Of Firm

| Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |----------------------------|-----|-------|-------|---------|------| | Selling | 98% | 99% | 95% | 100% | 91% | | Selling direct | 91% | 90% | 91% | 100% | 72% | | Selling through agents/distributors | 29% | 35% | 24% | 42% | 40% | | Contractual arrangements | 6% | 5% | 7% | 26% | 15% | | Licensing | 3% | 2% | 2% | 8% | 13% | | Franchising | 0% | 0% | 1% | 3% | 0% | | Other partnerships or JVs | 2% | 4% | 6% | 8% | 10% | | Overseas site | 8% | 11% | 20% | 37% | 19% | | Own site - production | 2% | 2% | 1% | 8% | 9% | | Own site - call centre | 0% | 1% | 0% | 0% | 0% | | Own site - sales | 4% | 7% | 14% | 29% | 9% | | Own site - R&D | 1% | 0% | 0% | 0% | 0% | | Importing | 52% | 54% | 40% | 58% | 59% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – 0-9 (502, 0%), 10-49 (300, 0%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

There is some evidence to suggest that some modes of internationalisation are more popular with larger firms (of 50+ employees), including licensing, other partnerships & joint ventures, overseas production sites and overseas sales sites. The table below shows patterns of usage of the various different modes of internationalisation by experience (measured via the number of years firms have been involved in overseas business activity).

Table 5.1.5 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Experience

| Experience (Number of Years) | Less than 2 years | 2-10 years | More than 10 years | |-----------------------------|-------------------|------------|--------------------| | Selling | 96% | 98% | 98% | | Selling direct | 87% | 91% | 91% | | Selling through agents/distributors | 27% | 27% | 40% | | Contractual arrangements | 6% | 7% | 6% | | Licensing | 2% | 3% | 3% | | Franchising | 0% | 1% | 0% | | Other partnerships or JVs | 5% | 4% | 3% | | Overseas site | 10% | 11% | 11% | | Own site - production | 1% | 3% | 3% | | Own site - call centre | 0% | 1% | 0% | | Own site - sales | 7% | 7% | 7% | | Own site - R&D | 1% | 0% | 1% | | Importing | 42% | 49% | 60% | | Total | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – Experience: Less than 2 years (182, 0%), 2-10 years (515, 0%), More than 10 years (199, 0%)

Whilst the pattern of usage of the various different modes of internationalisation does not appear to alter with the age of the firm, there is some evidence to suggest that those firms that have been involved in overseas business activity for more than 10 years are more likely to be involved in both selling through agents and/or distributors and importing (but not other contractual arrangements or establishing an overseas site). The table below shows patterns of usage of the various different modes of internationalisation by various measures of innovation and usage of IP protection. For the definitions of ‘innovative’ firms and IP active firms used in this analysis, see Chapter 6.7.

Table 5.1.6 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Innovation & IP

| Mode | Innovative? | IP Active? | |-------------------------------|-------------|------------| | | Yes (Tighter Defn) | Yes | No | Yes | No | | Selling | 98% | 98% | 97% | 98% | 98% | | Selling direct | 90% | 89% | 92% | 91% | 90% | | Selling through agents/distributors | 41% | 37% | 17% | 40% | 28% | | Contractual arrangements | 9% | 8% | 3% | 12% | 4% | | Licensing | 5% | 4% | 1% | 4% | 2% | | Franchising | 1% | 0% | 0% | 1% | 0% | | Other partnerships or JVs | 4% | 4% | 2% | 7% | 2% | | Overseas site | 13% | 13% | 6% | 15% | 8% | | Own site - production | 3% | 3% | 2% | 5% | 1% | | Own site - call centre | 1% | 0% | 0% | 0% | 0% | | Own site - sales | 7% | 8% | 3% | 10% | 5% | | Own site - R&D | 0% | 1% | 0% | 0% | 1% | | Importing | 62% | 59% | 35% | 58% | 50% | | Total | 100% | 100% | 100%| 100%| 100%|

Base: All respondents (Base) – Innovation: Innovative (Alternative) (418), Innovative (659), Non-innovative (241) – IP Active: Yes (267), No (608)

There is some evidence to suggest that innovative and IP active firms are more likely to be involved in a number of modes of internationalisation beyond direct sales, including selling through agents/distributors, licensing and other partnerships/JVs and operating an overseas site. Innovative firms are also more likely to import. The table below shows patterns of usage of the various different modes of internationalisation by whether or not younger firms (aged up to five years) are ‘born global’ (i.e. have been conducting business overseas since the outset) or ‘young, technology intensive’ firms. For the definition of ‘young, technology intensive firms’ used in this analysis, see Chapter 6.7.

Table 5.1.7 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Young Technology Intensive Firms/Born Globals

| Age (Years Trading) | Total | Born global | Young, Technology Intensive | More than 5 | |---------------------|-------|-------------|-----------------------------|-------------| | | Up to 5 | | | | | Selling | 96% | 98% | 97% | 98% | | Selling direct | 90% | 93% | 89% | 90% | | Selling through agents/distributors | 29% | 30% | 31% | 33% | | Contractual arrangements | 7% | 6% | 9% | 6% | | Licensing | 3% | 4% | 4% | 3% | | Franchising | 1% | 1% | 1% | 0% | | Other partnerships or JVs | 5% | 3% | 6% | 3% | | Overseas site | 12% | 13% | 13% | 11% | | Own site - production | 2% | 3% | 2% | 2% | | Own site - call centre | 0% | 0% | 0% | 0% | | Own site - sales | 8% | 9% | 10% | 6% | | Own site - R&D | 1% | 0% | 0% | 0% | | Importing | 48% | 60% | 55% | 53% | | Total | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), Up to 5/born global (152), Up to 5/innovative or IP active (210), More than 5 (617)

Both born global firms and young, technology intensive firms are very similar in respect of their usage of the various modes of internationalisation to both young firms overall and older firms. The table below shows patterns of usage of the various different modes of internationalisation by firms’ growth. For details of the definitions of growth used in this analysis, see Chapter 6.9.

Table 5.1.8 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Growth

| Growth (ASBS Definition) | Growth (OECD Definition) | |--------------------------|--------------------------| | Sustained | Contained | New | No growth | High-growth | Gazelles | | Selling | 98% | 98% | 94% | 99% | 98% | 100% | | Selling direct | 93% | 85% | 88% | 92% | 92% | 98% | | Selling through agents/distributors | 37% | 36% | 28% | 30% | 29% | 33% | | Contractual arrangements | 11% | 7% | 6% | 5% | 13% | 11% | | Licensing | 5% | 1% | 4% | 3% | 4% | 7% | | Franchising | 0% | 0% | 0% | 1% | 1% | 2% | | Other partnerships or JVs | 6% | 6% | 4% | 2% | 9% | 4% | | Overseas site | 15% | 11% | 18% | 8% | 17% | 13% | | Own site - production | 1% | 4% | 7% | 1% | 2% | 2% | | Own site - call centre | 0% | 0% | 1% | 0% | 1% | 0% | | Own site - sales | 13% | 6% | 7% | 5% | 14% | 11% | | Own site - R&D | 0% | 0% | 1% | 1% | 0% | 0% | | Importing | 58% | 59% | 46% | 51% | 54% | 63% | | Total | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Growth (ASBS): Sustained (148), Contained (148), New (165), No growth (439) – Growth (OECD): High-growth (143), Gazelles (46)

There is some evidence to suggest that those firms exhibiting higher growth are also more likely to be involved in some of the modes of internationalisation beyond direct sales, and particularly contractual arrangements or establishing an overseas site. The table below shows patterns of usage of the various different modes of internationalisation by industry sector. This analysis is shown at the summary level (production versus services) as well as at 1-digit SIC level for individual sectors within which at least 30 interviews were conducted.

Table 5.1.9 Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’) – By Industry Sector

| Sector (Summary) | Sector (Detailed) | |------------------|-------------------| | | Product | Services | D – Manufacturing | G – Retail & Wholesale | I – Transport, Storage & Comm | K – Real Estate, Renting & Bus Act. | | Selling | 97% | 98% | 97% | 100% | 95% | 99% | | Selling direct | 88% | 92% | 88% | 93% | 84% | 93% | | Selling through agents/distributors | 39% | 26% | 39% | 2% | 33% | 24% | | Contractual arrangements | 5% | 8% | 5% | 3% | 7% | 9% | | Licensing | 3% | 3% | 3% | 0% | 5% | 4% | | Franchising | 0% | 0% | 0% | 0% | 0% | 0% | | Other partnerships or JVs | 2% | 5% | 2% | 2% | 2% | 5% | | Overseas site | 12% | 10% | 11% | 7% | 11% | 12% | | Own site - production | 5% | 0% | 5% | 0% | 0% | 0% | | Own site - call centre | 0% | 0% | 0% | 0% | 0% | 0% | | Own site - sales | 6% | 7% | 6% | 5% | 9% | 9% | | Own site - R&D | 1% | 0% | 1% | 0% | 0% | 1% | | Importing | 64% | 43% | 64% | 65% | 37% | 30% | | Total | 100 | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Production (377), Services (505) – D - Manufacturing (372), G – Retail, Wholesale & Repair of Motor Vehicles (151), I – Transport, Storage & Communication (33), K – Real Estate, Renting & Business Activities (268)

Whilst the production and service industries appear to be very similar in terms of usage by internationalising firms of contractual arrangements and the establishment of overseas sites, firms in service industries are much less likely to be importing. However, the picture does vary across individual service industries, with firms in the retail and wholesale sector as likely as firms in the production sector to import. 5.2 Usage - Number

The chart below provides an analysis of the number of modes firms have been involved in (in the last five years, or considering for ‘considerers’), out of the nine modes captured.

Chart 5.2.1 Number Of Modes Of Internationalisation Used In Last 5 Years (Or Considering In Next Year For ‘Considerers’)

The majority are involved in (or considering) just one of these modes (with this mode being selling direct for 88% of this group). Whilst more than 1 in 5 are involved in (or considering) two modes, only a small minority are involved in three or more.

However, this picture varies considerably across modes. In particular those involved in some form of ‘contractual arrangement’ or with their own overseas site are very likely to be involved in at least two different forms of internationalisation (and in many cases three or more). Please note the very small base sizes for some of the rarer modes of internationalisation when interpreting these results. The chart below shows the number of modes firms are involved in when the various forms of internationalisation are summarised into the three groups: ‘selling’, ‘contractual arrangements’ and ‘overseas sites’.

Chart 5.2.2 Number Of Modes Of Internationalisation Used In Last 5 Years (Summary) (Or Considering In Next Year For ‘Considerers’)

Again, the majority are involved in (or considering) just one of these summary modes (with this mode being ‘selling’ for the majority). Whilst around 1 in 8 are involved in (or considering) two of these summary modes, only a very small minority are involved in all three.

However, this picture varies considerably across modes. In particular those involved in either ‘contractual arrangements’ or having an ‘overseas site’ are generally involved either two or all three of these summary modes. 6. Profile

6.1 Age of Business

The chart below shows the profile of firms in terms of their age. This analysis provides data on the overall profile of firms, but also the profiles of all firms involved in each of the internationalisation modes(^6) (or considering in the case of ‘considerers’).

Chart 6.1 When Business Established

As detailed earlier, the overall sample frame for this study was stratified by age, with a roughly similar number of interviews conducted with firms aged up to 5 years, firms aged 5-10 and firms more than 10 years old. The data has then been weighted to the known profile of internationalising firms (based on data provided by BERR and taken from the 2006 Annual Small Business Survey), and the overall profile of firms reflects this.

Interestingly, the age profile of users of the various modes of internationalisation is relatively similar (taking into account the small base sizes for some modes).

(^6) And not just those selected to focus on each mode in the main body of the questionnaire. The table below shows this age data by firm size (measured via number of employees).

Table 6.1 When Business Established – By Size Of Firm

| Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |----------------------------|-----|-------|-------|---------|------| | Within the last 2 years | 5% | 2% | 2% | 3% | 0% | | 2-5 years ago | 20% | 11% | 12% | 0% | 5% | | 5-10 years ago | 21% | 18% | 14% | 19% | 8% | | 10-20 years ago | 31% | 34% | 27% | 16% | 18% | | More than 20 years ago | 22% | 34% | 44% | 62% | 70% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don't know) – Size: 0-9 (502, 0%), 10-49 (300, 0%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

As expected, this analysis shows that larger firms tend to be older than their younger counterparts; although it should be noted that a significant proportion of the smallest internationalising firms (with less than 10 employees) have been established for some time (31% between 10 and 20 years and 22% over 20 years). 6.2 Size of Business (Employees)

The chart below shows the size profile of firms, measured via their number of employees.

Chart 6.2 Number of Employees

Around half of internationalising firms have less than 10 employees and by far the majority have less than 50 employees. This reinforces the importance of consideration of the needs of smaller firm when formulating policy in the area of trade support. The table below shows firm size analysed by age.

Table 6.2 Number of Employees – By Age Of Firm

| Age (Years Trading) | Up to 5 | 6-10 | More than 10 | |---------------------|---------|------|--------------| | Less than 10 | 69% | 57% | 44% | | 10-49 | 25% | 34% | 40% | | 50-99 | 4% | 4% | 6% | | 100-249 | 0% | 2% | 3% | | 250 or more | 1% | 2% | 6% | | Total | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused, Not yet trading) – Age: Up to 5 (283, 0%, 0%), 6-10 (286, 1%, 0%), More than 10 (331, 1%, 0%)

Again, the expected relationship between age and size of firm is highlighted. 6.3 Size of Business (Turnover)

The chart below shows the size profile of firms as measured by their annual turnover.

Chart 6.3 Annual Turnover

Over half of internationalising firms have fairly modest turnovers of up to £2million, with firms with turnovers of over £10million very much in the minority. The table below shows firm size measured via turnover analysed by both size (measured by number of employees) and age.

Table 6.3 Annual Turnover - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Up to £500,000 | 41% | 32% | 22% | 49% | 7% | 0% | 0% | 0% | | £500,000-£2million | 23% | 31% | 24% | 24% | 34% | 7% | 6% | 4% | | £2million-£10million| 13% | 12% | 20% | 6% | 29% | 44% | 34% | 9% | | £10million-£50million| 1% | 2% | 4% | 0% | 4% | 18% | 23% | 10% | | More than £50million| 1% | 2% | 4% | 0% | 1% | 6% | 18% | 46% | | Total | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused, Not yet trading) – Age: Up to 5 (283, 20%, 0%), 6-10 (286, 20%, 0%), More than 10 (331, 26%, 0%) - Size: 0-9 (502, 22%, 0%), 10-49 (300, 24%, 0%), 50-99 (45, 25%, 0%), 100-249 (18, 18%, 0%), 250+ (28, 31%, 0%)

There is a strong relationship between size measured by turnover and size measured by number of employees. The expected relationship between turnover and age is also evident, with older firms more likely to have the larger turnovers (of over £2million). However, it is certainly not the case that all older firms have larger turnovers: 22% of firms established more than 10 years ago have turnovers of £500,000 or less and around half have turnovers of less than £2million. 6.4 Industry Sector

The chart below shows the profile of firms in terms of their industry sector. The data on sector is collected at the level of 1-digit SIC code, but for the purposes of this analysis has been summarised into primary industries, production, construction and services. A more detailed breakdown is shown overleaf.

Chart 6.4 Industry Sector

Overall, roughly similar proportions of firms are in production/construction and services. There is some evidence to suggest that firms opting to sell via agents or distributors are more likely to be in production than internationalising firms as a whole. The table below provides a more detailed breakdown of sector.

### Table 6.4.1 Industry Sector (Detailed)

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |-----------------------------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | A - Agriculture, hunting & forestry | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | B - Fishing | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | C - Mining & quarrying | 1% | 1% | 1% | 0% | 0% | 0% | 0% | 0% | 3% | 0% | | D - Manufacturing | 45% | 44% | 56% | 45% | 60% | 30%| 92% | 0% | 39% | 61% | | F - Construction | 2% | 2% | 1% | 0% | 0% | 2% | 0% | 0% | 2% | 0% | | G - Retail, wholesale & repair of motor vehicles | 16% | 16% | 12% | 2% | 0% | 7% | 0% | 0% | 11% | 0% | | I - Transport, storage and communication | 4% | 3% | 4% | 6% | 0% | 2% | 0% | 0% | 5% | 0% | | J - Financial intermediation (Finance) | 2% | 2% | 3% | 5% | 0% | 2% | 3% | 26% | 2% | 0% | | K - Real estate, renting & business activities | 26% | 27% | 20% | 37% | 20% | 37%| 3% | 0% | 37% | 39% | | L - Public administration and defence | 1% | 1% | 1% | 2% | 20% | 7% | 0% | 74% | 0% | 0% | | M - Education | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | N - Health and social work | 2% | 1% | 2% | 2% | 0% | 10%| 3% | 0% | 1% | 0% | | O - Other community, social & pers service act | 1% | 1% | 0% | 0% | 0% | 2% | 0% | 0% | 0% | 0% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All respondents (Base, Don’t know/Refused) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

As seen above, 26% of all internationalising firms fall into the ‘real estate, renting and business activities’ sector but this proportion drops to 20% amongst those using agents or distributors, suggesting that firms in this sector are comparatively less likely to adopt this internationalisation mode. A similar picture is also seen in the ‘retail, wholesale and repair of motor vehicles’. The table below shows both the summarised and detailed industry sector data analysed by both size (measured by number of employees) and age.

Table 6.4.2 Industry Sector - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10 - 49 | 50 - 99 | 100 - 249 | 250+ | | Primary | 0% | 1% | 0% | 0% | 1% | 1% | 3% | 0% | | Production | 36% | 36% | 53% | 41% | 50% | 54% | 55% | 63% | | Construction | 1% | 2% | 2% | 1% | 4% | 0% | 0% | 0% | | Services | 63% | 62% | 45% | 58% | 46% | 45% | 42% | 37% | | A - Agriculture, hunting & forestry | 0% | 1% | 0% | 0% | 0% | 1% | 3% | 0% | | B - Fishing | 0% | 0% | 0% | 0% | 1% | 0% | 0% | 0% | | C - Mining & quarrying | 0% | 1% | 1% | 1% | 0% | 0% | 0% | 4% | | D - Manufacturing | 36% | 35% | 52% | 40% | 50% | 54% | 55% | 59% | | F - Construction | 1% | 2% | 2% | 1% | 4% | 0% | 0% | 0% | | G - Retail, wholesale & repair of motor vehicles | 22% | 15% | 14% | 17% | 14% | 22% | 6% | 9% | | I - Transport, storage and communication | 4% | 3% | 3% | 2% | 3% | 7% | 16% | 16% | | J - Financial intermediation (Finance) | 3% | 2% | 2% | 1% | 3% | 0% | 11% | 0% | | K - Real estate, renting & business activities | 32% | 37% | 21% | 34% | 20% | 15% | 11% | 10% | | L - Public administration and defence | 0% | 1% | 1% | 0% | 2% | 0% | 0% | 0% | | M - Education | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | N - Health and social work | 2% | 2% | 2% | 2% | 2% | 1% | 0% | 2% | | O - Other community, social & pers service act | 1% | 1% | 2% | 1% | 2% | 0% | 0% | 0% | | Total | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There is some evidence to suggest that a larger proportion of both older and larger internationalising firms are in the production sector than is the case for younger and smaller firms. 6.5 Ownership

The table below provides an analysis of the ownership of firms in terms of whether they are domestically or foreign owned.

Table 6.5 Ownership

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Own Site | |---------------|-------|--------|------------------|-----------|-------------|----|----------| | | | | | | | | Production | Call centre | Sales | R&D | | UK-owned | 100% | 89% | 87% | 89% | 100% | 89%| 66% | 100% | 74% | 100%| | Foreign-owned | 9% | 9% | 9% | 9% | 0% | 4% | 29% | 0% | 21% | 0% | | Joint UK and foreign-owned | 2% | 2% | 3% | 2% | 0% | 7% | 6% | 0% | 5% | 0% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Whilst the vast majority of the firms interviewed are UK-owned, around 1 in 10 are in foreign ownership (either wholly or partly). There is some evidence to suggest that the incidence of foreign ownership is higher amongst those operating their own overseas site in comparison with those internationalising via other means. 6.6 Experience of Doing Business Overseas

6.6.1 Overall Assessment of Experience

The chart below shows firms’ own assessment of their overseas business experience. Firms were asked to select from the four options detailed below.

Chart 6.6.1 Experience – Overall Assessment

Very few firms feel that they are 'not at all experienced' across all modes. Overall, around a quarter of firms feel that they are 'very experienced' in overseas markets. Whilst the base sizes are too small for a robust analysis, there appears to be some evidence to suggest that those firms operating their own overseas sites are more likely to feel that they are 'very experienced' than those operating via other modes. The table below shows firms' overall assessment of their overseas business experience analysed by both size (measured by number of employees) and age.

Table 6.6.1 Experience – Overall Assessment - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |---------------------|-----------------------------|-----|-------|-------|---------|------| | Up to 5 | 18% | 22% | 25% | 36% | 47% | 54% | | 6-10 | 24% | 41% | 48% | 44% | 32% | 25% | | > 10 | 29% | 25% | 22% | 20% | 21% | 19% | | Total | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don't know, Not involved in targeted overseas business activities in last 5 years) – Age: Up to 5 (283, 0%, 13%), 6-10 (286, 0%, 4%), More than 10 (331, 0%, 2%) – Size: 0-9 (502, 0%, 6%), 10-49 (300, 0%, 4%), 50-99 (45, 0%, 1%), 100-249 (18, 0%, 0%), 250+ (28, 0%, 2%)

There is the expected link between age and size of firm and firms’ overall assessment of their experience, with older and larger firms more likely to feel that they have higher levels of experience. 6.6.2 Number Of Years Doing Business Overseas

The chart below shows the experience profile of firms as measured by the length of time they have been involved in overseas business activity.

Chart 6.6.2 Experience – Number Of Years Doing Business Overseas

Interestingly, the experience profile of firms as measured by the length of time they have been involved in overseas business activity is reasonably similar across modes (given the base sizes involved), although there is some evidence to suggest that firms selling through agents or distributors have a slightly more experienced profile than those opting for other modes of internationalisation. The table below shows the length of time firms have been involved in overseas business activity analysed by both size (measured by number of employees) and age.

Table 6.6.2.1 Experience – Number Of Years Doing Business Overseas - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Less than 2 years | 45% | 13% | 5% | 18% | 12% | | 2-5 years | 55% | 30% | 12% | 25% | 23% | | 6-10 years | 0% | 56% | 23% | 26% | 28% | | 11-20 years | 0% | 0% | 32% | 19% | 22% | | More than 20 years | 0% | 0% | 28% | 13% | 18% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/Refused) – Age: Up to 5 (283, 0%), 6-10 (286, 1%), More than 10 (331, 0%) – Size: 0-9 (502, 0%), 10-49 (300, 0%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

As expected, there is a very strong link between the age of the firm and the length of time they have been doing business overseas, suggesting that when firms do internationalise they often do so reasonably early on. Similarly, there is a link between size and the length of time firms have been involved in overseas business activity, with smaller firms tending to have been involved in overseas business activity for a shorter period than the larger firms.

The table below shows the proportion of firms that are classified as being ‘born global’. In this context, ‘born global’ has been defined as any firms that have been established up to 5 years and have been doing business overseas since they were established.

Table 6.6.2.2 Experience – ‘Born Global’ Firms

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | ‘Born Global’ | 10% | 11% | 9% | 14% | 40% | 9% | 14% | 0% | 14% | 0% | | More than 5 years old | 81% | 81% | 83% | 79% | 40% | 76% | 83% | 100% | 77% | 61% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Around 1 in 10 internationalising firms have been established for 5 years or less and have been doing business overseas from the outset, and are therefore classified as being ‘born global’. This equates to just over half of all firms established within the last 5 years. 6.6.3 Number Of Markets

The chart below shows the number of overseas markets firms are doing business in.

Chart 6.6.3 Experience – Number of Markets Done Business in During Last 5 Years

Just over half of internationalising firms have done business in more than five markets (over the last five years), and approaching a third have done business in more than 10. Only a minority of firms have done business in just one overseas market.

The number of markets firms have done business in tends to be higher for firms involved in modes beyond simply selling direct. The table below shows the number of markets firms have been doing business in over the last five years analysed by both size (measured by number of employees) and age.

Table 6.6.3 Experience – Number of Markets Done Business in During Last 5 Years - By Size And Age

| Age (Years Trading) | Up to 5 | 6-10 | > 10 | |---------------------|---------|------|------| | None | 13% | 4% | 2% | | One | 12% | 12% | 8% | | 2-5 | 36% | 30% | 28% | | 6-10 | 20% | 25% | 27% | | More than 10 | 17% | 28% | 35% | | Total | 100% | 100% | 100% |

| Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |----------------------------|-----|-------|-------|---------|------| | None | 6% | 4% | 1% | 0% | 2% | | One | 13% | 7% | 8% | 3% | 4% | | 2-5 | 35% | 27% | 24% | 8% | 6% | | 6-10 | 26% | 25% | 21% | 21% | 22% | | More than 10 | 19% | 37% | 46% | 68% | 66% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – Age: Up to 5 (283, 1%), 6-10 (286, 0%), More than 10 (331, 0%) – Size: 0-9 (502, 0%), 10-49 (300, 1%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

The number of markets firms have done business in over the last five years tends to increase with increasing age and size. 6.6.4 Proportion Of Turnover Accounted For By Overseas Sales

The chart below shows firms’ experience as measured by the proportion of their turnover that is accounted for by overseas sales.

Chart 6.6.4 Experience – Proportion Of Turnover Accounted For By Overseas Sales

Whilst for a significant proportion of firms (around two-fifths) overseas business makes up 10% or less of their overall turnover, for around a quarter overseas business accounts for over half of their turnover. This increases to a third of those operating their own overseas sales sites. The table below shows the proportion of firms' turnover accounted for by overseas business analysed by both size (measured by number of employees) and age.

Table 6.6.4 Experience – Proportion Of Turnover Accounted For By Overseas Sales - By Size And Age

| Age (Years Trading) | Up to 5 | 6-10 | > 10 | |---------------------|---------|------|------| | Zero | 14% | 4% | 2% | | Less than 10% | 37% | 37% | 31% | | 11%-25% | 12% | 13% | 16% | | 26%-50% | 14% | 15% | 15% | | 51%-75% | 5% | 14% | 10% | | More than 75% | 11% | 11% | 17% | | Total | 100% | 100% | 100% |

| Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |----------------------------|-----|-------|-------|---------|------| | Zero | 7% | 4% | 2% | 0% | 2% | | Less than 10% | 40% | 28% | 18% | 21% | 28% | | 11%-25% | 11% | 21% | 16% | 3% | 4% | | 26%-50% | 15% | 15% | 17% | 34% | 4% | | 51%-75% | 8% | 10% | 13% | 13% | 18% | | More than 75% | 15% | 13% | 18% | 11% | 25% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused) – Age: Up to 5 (283, 6%), 6-10 (286, 7%), More than 10 (331, 8%) – Size: 0-9 (502, 4%), 10-49 (300, 9%), 50-99 (45, 15%), 100-249 (18, 18%), 250+ (28, 19%)

Not only do younger and smaller firms tend to have lower turnovers, but lower proportions of their overall turnovers tend to be accounted for by overseas business than older and larger firms. 6.6.5 Overall Assessment of Experience – Selected Mode

The chart below shows firms’ own assessment of their overseas business experience in relation to one specific mode (further details of the selection of this mode is provided in Chapter 8).

Chart 6.6.5 Experience – Overall Assessment – Selected Mode

Very few firms feel that they are ‘not at all experienced’ across all modes. Overall, around a quarter of firms feel that they are ‘very experienced’ in this particular mode. Whilst the base sizes are too small for a robust analysis across all modes, there appears to be some evidence to suggest that those firms selling directly are less likely to feel that they are ‘very experienced’ than those selling through agents or distributors or via their own overseas site. The table below shows firms’ assessment of their experience of this one specific mode analysed by both size (measured by number of employees) and age.

Table 6.6.5 Experience – Overall Assessment - Selected Mode - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Very experienced | 17% | 24% | 30% | 20% | 28% | 36% | 55% | 54% | | Quite experienced | 38% | 43% | 42% | 41% | 45% | 45% | 24% | 23% | | Not very experienced| 28% | 25% | 21% | 26% | 21% | 18% | 21% | 21% | | Not at all experienced| 5% | 3% | 3% | 5% | 2% | 0% | 0% | 0% | | Total | 100%| 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused, Not yet started) – Age: Up to 5 (283, 0%, 13%), 6-10 (286, 0%, 4%), More than 10 (331, 1%, 2%) – Size: 0-9 (502, 1%, 6%), 10-49 (300, 1%, 4%), 50-99 (45, 0%, 1%), 100-249 (18, 0%, 0%), 250+ (28, 0%, 2%)

There is the expected link between age and size of firm and firms’ assessment of their experience, with older and larger firms more likely to feel that they have higher levels of experience. 6.6.6 Number Of Years Doing Business Overseas – Selected Mode

The chart below shows the experience profile of firms as measured by the length of time they have been involved in this overseas business activity.

Chart 6.6.6 Experience – Number Of Years Doing Business Overseas – Selected Mode

Interestingly, the experience profile of firms as measured by the length of time they have been involved in overseas business activity is reasonably similar across modes (given the base sizes involved). The table below shows the length of time firms have been involved in this particular overseas business activity analysed by both size (measured by number of employees) and age.

Table 6.6.6 Experience – Number Of Years Doing Business Overseas – Selected Mode - By Size And Age

| Age (Years Trading) | Up to 5 | 6-10 | > 10 | |---------------------|---------|------|------| | Within the last 2 years | 60% | 32% | 27% | | 2-5 years | 39% | 33% | 24% | | 6-10 years | 0% | 33% | 16% | | 10-20 years | 0% | 0% | 19% | | More than 20 years | 0% | 0% | 13% | | Total | 100% | 100% | 100% |

| Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |---------------------------|-----|-------|-------|---------|------| | Within the last 2 years | 40% | 36% | 29% | 26% | 29% | | 2-5 years | 30% | 29% | 42% | 42% | 11% | | 6-10 years | 17% | 13% | 13% | 17% | 18% | | 10-20 years | 7% | 14% | 4% | 0% | 14% | | More than 20 years | 4% | 7% | 11% | 8% | 27% | | Total | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused) – Age: Up to 5 (283, 1%), 6-10 (286, 3%), More than 10 (331, 1%) – Size: 0-9 (502, 2%), 10-49 (300, 1%), 50-99 (45, 1%), 100-249 (18, 8%), 250+ (28, 0%)

As expected, there is a very strong link between the age of the firm and the length of time they have been doing business overseas via the mode in question. Similarly, there is a link between size and the length of time firms have been involved in this overseas business activity, with smaller firms tending to have been involved in this overseas business activity for a shorter period than the larger firms. 6.6.7 Number Of Markets – Selected Mode

The chart below shows the number of overseas markets firms are doing business in via the selected mode (or are considering doing business in for ‘considerers’).

Chart 6.6.7 Experience – Number of Overseas Countries Have Adopted/Are Considering Selected Approach In – Selected Mode

Approaching half of internationalising firms have done business in more than five markets via the selected mode, with this figure of around half holding for both selling direct and selling through agents or distributors. There is some evidence to suggest that in the case of overseas sites, firms involved in this mode of internationalisation tend to do so in fewer markets, but the small base sizes must be borne in mind when interpreting this result. The table below shows the number of markets firms have been doing business in over via the selected mode analysed by both size (measured by number of employees) and age.

Table 6.6.7 Experience – Number of Overseas Countries Have Adopted/Are Considering Selected Approach In – Selected Mode - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | None | 0% | 0% | 0% | 0% | 0% | | One | 20% | 17% | 11% | 18% | 12% | | 2-5 | 45% | 34% | 34% | 42% | 33% | | 6-10 | 18% | 23% | 24% | 22% | 25% | | More than 10 | 17% | 25% | 30% | 18% | 30% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know/refused) – Age: Up to 5 (283, 1%), 6-10 (286, 0%), More than 10 (331, 1%) – Size: 0-9 (502, 1%), 10-49 (300, 1%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

The number of markets firms have employed the given mode in tends to increase with increasing age and size. 6.7 Innovation

6.7.1 ‘Innovative’ Firms

Information on the engagement of employees in R&D and new product (or service) development activity, externally commissioned product (or service) development and sales of new products and services has been used to classify firms as either ‘innovative’ or ‘non-innovative’. The details of this classification are provided below, which replicates exactly the PIMS definition of innovation.

**‘Innovative’ Firms**

Firms have been classified as ‘innovative’ if they...

- Have more than one employee engaged either wholly or partly in R&D activity (H4a) and have more than one employee engaged either wholly or partly in new product or service development (H5)
- Or, have employed someone external to the business to conduct new product or service development activity in the last year (H6)
- Or, derive some of their turnover from products & services introduced in the last 3 years (H7a) except firms established in the last 2 years

The table below shows the proportions of firms classified as ‘innovative’ via this definition.

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |---------------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Innovative | 72% | 72% | 85% | 91% | 80% | 85%| 79% | 100% | 85% | 74% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Overall, 72% of internationalising firms are ‘innovative’. There is some evidence to suggest that the incidence of ‘innovative’ firms is higher amongst those involved in modes beyond simple direct selling (where base sizes allow for comparisons to be made). The table below shows levels of innovative firms analysed by both size (measured by number of employees) and age.

Table 6.7.1.2 'Innovative' Firms - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | | 6-10 | 10-49 | | > 10 | 50-99 | | | 100-249 | | | 250+ |

| Innovative | 69% | 80% | 70% | | | 68% | 77% | 64% | | | 92% | 88% | 100% | | Total | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There is no consistent pattern by either age or size of firm.

A further, tighter definition of innovation has also been constructed that also takes account of whether or not employees engaged in R&D are engaged in what the respondent would describe as ‘the development of scientific or technical knowledge that is not commonly available’ and whether or not any new products or services they have introduced are ‘novel’ (i.e. new to sector or new to world as opposed to just new to their business). The details of this classification are provided below, which again replicates exactly the tighter PIMS definition of innovation.

‘Innovative’ Firms - Alternative (Tighter) Definition

Firms have been classified as ‘innovative’ under the alternative (tighter) definition if they...

- Have more than one employee engaged either wholly or partly in R&D activity (H4a) and have more than one employee engaged either wholly or partly in new product or service development (H5) and any R&D employees are involved in the ‘development of scientific or technical knowledge that is not commonly available’ (H4b)
- Or, have employed someone external to the business to conduct new product or service development activity in the last year (H6)
- Or, derive at least some of their turnover from products & services introduced in the last 3 years (H7a) except firms established in the last 2 years and these products & services are completely new and have not been introduced by anyone else previously (H7b) The table below shows the proportions of firms classified as ‘innovative’ via this tighter definition.

Table 6.7.1.3 'Innovative' Firms – Alternative (Tighter) Definition

| Mode | Own Site | Total | |-----------------------|----------|-------| | | Prod. | Call centre | Sales | R&D | | Innovative (tighter definition) | 47% | 60% | 72% | 80% | 57% | 66% | 100% | 50% | 38% | | Total | 100% | 100% | 100% | 100%| 100%| 100%| 100% | 100%| 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Overall, just under half of these firms are classified as innovative via this alternative definition. There is again some evidence to suggest that the incidence of innovative firms is higher amongst those involved in selling via agents or distributors and those involved in contractual arrangements.

The table below shows levels of innovative firms as determined by this alternative definition analysed by both size (measured by number of employees) and age.

Table 6.7.1.4 'Innovative' Firms – Alternative (Tighter) Definition - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | 45% | 51% | 32% | 68% | 46% | | > 10 | 41% | 51% | 47% | | | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There is no consistent pattern evident by either age or size of firm. 6.7.2 IP Active Firms

Firms were asked to indicate whether or not they hold any patents or trademarks, either in the UK or overseas, for any of their products or services. This data has then been used to create a measure of ‘IP active’ firms, as detailed in below.

‘IP Active’ Firms

Firms have been classified as ‘IP active’ if they...

- Currently hold any patents of trademarks, either in the UK or overseas (H8b)

The table below shows the proportions of firms classified as IP active via this definition.

Table 6.7.2.1 IP Active Firms

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |---------------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | IP active | 31% | 31% | 39% | 46% | 60% | 64%| 63% | 26% | 45% | 13% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Just under a third of firms are classified as IP active under this definition, with this proportion higher amongst those involved in modes beyond simply selling direct.

The table below shows the incidence of IP active firms by both size (measured by number of employees) and age.

Table 6.7.2.2 IP Active Firms - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | | | | | | | > 10 | | | | | | | IP active | 27% | 29% | 33% | | | | Total | 100%| 100% | 100% | | |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There is evidence to suggest that the incidence of IP active firms increases with both age and size of firm. 6.7.3 Young, Technology Intensive Firms

Firms aged up to 5 years old classified as either ‘innovative’ or IP active under the above definitions have been classified as ‘young, technology intensive firms’.

The table below shows the proportions of firms classified as ‘young, technology intensive’ via this definition.

Table 6.7.3.1 Young, Technology Intensive Firms

| Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |-----------------------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Young, technology intensive | 14% | 14% | 14% | 21% | 60%| 22% | 14% | 0% | 20% | 13% | | More than 5 years old | 81% | 81% | 83% | 79% | 40%| 76% | 83% | 100% | 77% | 61% | | Total | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%| 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

One in 7 internationalising firms are also ‘young, technology intensive’.

The table below shows levels of young, technology intensive firms analysed by both size (measured by number of employees) and age.

Table 6.7.3.2 Young, Technology Intensive Firms - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Young, technology intensive | 74% | 0% | 0% | 19% | 10% | 7% | 3% | 3% | | More than 5 years old | 0% | 100% | 100% | 74% | 87% | 85% | 97% | 95% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

The incidence of young, technology intensive firms decreases with increasing firm size, although the extent to which this is related to the increased likelihood of firms being more than 5 years old as they get larger should be taken into account when interpreting this result. 6.8 Growth

6.8.1 Past Growth

Firms that have been in existence for at least three years were asked whether, compared to this time three years ago, the number of people they employed now was higher, lower or about the same. Those indicating that their employee numbers had grown were also asked to indicate the number of people that were employed by their firm three years ago(^7). This data has been combined to create a single measure of past growth, as follows.

| Past Growth (Employees) | |-------------------------| | Firms have been classified as having ‘decreased’ if… | | • Their employee numbers have decreased over the last 3 years (H2) | | Firms have been classified as having ‘stayed the same’ if… | | • Their employee numbers are the same as they were 3 years ago (H2) | | Firms have been classified as having ‘grown slightly’ if… | | • Their employee numbers have grown by less than 30% over the last 3 years (H2) | | Firms have been classified as having ‘grown moderately’ if… | | • Their employee numbers have grown by between 30-75% over the last 3 years (H2) | | Firms have been classified as having ‘grown substantially’ if… | | • Their employee numbers have grown by more than 75% over the last 3 years (H2) |

(^7) With those unable to provide an exact figure asked instead to indicate whether their employee numbers had increased by more than 75%, between 30-75% or less than 30%. The table below shows firms’ past growth profile, as determined by growth in employee numbers.

Table 6.8.1.1 Past Growth (Employees)

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | |-----------------------|-------|--------|------------------|-----------|-------------|----| | Decreased | 16% | 15% | 15% | 13% | 40% | 2% | | Stayed the same | 43% | 44% | 41% | 50% | 20% | 35%| | Grown slightly | 5% | 5% | 9% | 0% | 0% | 7% | | Grown moderately | 12% | 12% | 14% | 6% | 0% | 14%| | Grown substantially | 13% | 13% | 11% | 16% | 20% | 32%| | Total | 100% | 100% | 100% | 100% | 100% | 100%|

Base: All respondents (Base, Established in last 3 years, Don’t know (past growth), Don’t know (future growth)) – Selling direct (815, 9%, 2%, 5%), Agents/distributors (275, 8%, 3%, 4%), Licensing (28, 9%, 6%, 2%), Franchising (5, 20%, 0%, 20%), JVs/partnerships (32, 9%, 0%, 4%), Production site (20, 11%, 8%, 15%), Call centre (2, 0%, 0%, 0%), Sales site (67, 15%, 6%, 2%), R&D facility (6, 26%, 0%, 0%)

Well over half of firms have either stayed the same size or even decreased in size when growth is measured by changes in employee numbers (with a further 9% less than 3 years old).

There is some evidence to suggest that levels of growth are highest for those with overseas sales sites, and specifically levels of ‘substantial’ growth.

Firms were also asked to indicated whether, compared to this time three years ago, their turnover was now higher, lower or about the same (with those indicating that it was higher this time only asked to indicate whether it is ‘much’ or ‘a bit’ higher).

Table 6.8.1.2 Past Growth (Turnover)

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | |-----------------------|-------|--------|------------------|-----------|-------------|----| | Lower | 12% | 12% | 13% | 5% | 40% | 11%| | About the same | 18% | 18% | 21% | 30% | 20% | 19%| | A bit higher | 29% | 30% | 28% | 35% | 20% | 32%| | Much higher | 26% | 26% | 25% | 15% | 0% | 29%| | Total | 100% | 100% | 100% | 100% | 100% | 100%|

Base: All respondents (Base, Established in last 3 years, Don’t know) – Selling direct (815, 9%, 5%), Agents/distributors (275, 8%, 5%), Licensing (26, 9%, 6%), Franchising (5, 20%, 0%), JVs/partnerships (32, 9%, 0%), Production site (20, 11%, 18%), Call centre (2, 0%, 0%), Sales site (67, 15%, 3%), R&D facility (6, 26%, 0%)

In comparison with number of employees, growth measured by turnover shows fewer firms indicating that they have either stayed same size or decreased (less than a third). However, growth measured by turnover again indicates higher levels of growth for those operating their own overseas sales sites, and specifically those indicating that their turnover is now ‘much’ higher.

The table below shows past growth in terms of both employees and turnover analysed by both size (measured by number of employees) and age.

Table 6.8.1.3 Past Growth (Employees & Turnover) - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | | | | | | | > 10 | | | | | | | Employees: | | | | | | | Decreased | 8% | 15% | 18% | | | | Stayed the same | 22% | 39% | 50% | | | | Grown slightly | 1% | 4% | 7% | | | | Grown moderately | 6% | 15% | 13% | | | | Grown substantially | 16% | 25% | 8% | | | | Turnover: | | | | | | | Lower | 6% | 10% | 15% | | | | About the same | 7% | 18% | 22% | | | | A bit higher | 14% | 29% | 34% | | | | Much higher | 24% | 38% | 23% | | | | Total | 100%| 100% | 100% | | |

Base: All respondents (Base, Established in last 3 years, Don’t know (employees), Don’t know (turnover)) – Age: Up to 5 (283, 46%, 0%, 2%), 6-10 (286, 0%, 2%, 4%), More than 10 (331, 0%, 3%, 7%) – Size: 0-9 (502, 12%, 1%, 3%), 10-49 (300, 5%, 2%, 6%), 50-99 (45, 8%, 0%, 8%), 100-249 (18, 3%, 8%, 11%), 250+ (28, 3%, 14%, 18%)

Whilst the fact that approaching half of firms aged up to 5 years are in fact less than three years old (and so were not asked questions on past growth) must be taken into account when interpreting the data for the youngest firms, there is evidence to suggest that the oldest firms demonstrate lower levels of growth (and particularly substantial growth). 6.8.2 Future Growth

All firms (regardless of age) were asked their opinions on their future growth, assessing their business as a whole. The table below shows firms’ growth objectives for the next five years.

Table 6.8.2.1 Future Growth

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Remain the same size | 12% | 12% | 5% | 0% | 0% | 5% | 8% | 0% | 5% | 0% | | Become smaller | 2% | 2% | 2% | 0% | 0% | 0% | 0% | 0% | 1% | 0% | | Grow moderately | 50% | 50% | 57% | 54% | 60% | 49% | 24% | 0% | 47% | 62% | | Grow substantially | 31% | 31% | 31% | 44% | 20% | 40% | 53% | 100% | 45% | 38% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – Selling direct (815, 5%), Agents/distributors (275, 4%), Licensing (26, 2%), Franchising (5, 20%), JVs/partnerships (32, 4%), Production site (20, 15%), Call centre (2, 0%), Sales site (67, 2%), R&D facility (6, 0%)

Whilst the majority of firms indicated that they expect to grow, there were more likely to feel that this growth would be ‘moderate’ rather than ‘substantial’. There is perhaps some evidence to suggest that, as well as exhibiting higher levels of growth over the last 3 years, aspirations for the next 5 years are also higher amongst those with overseas sales sites.

The table below shows firms’ expectations in respect of future growth analysed by both size (measured by number of employees) and age.

Table 6.8.2.2 Future Growth - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Remain the same size | 11% | 12% | 12% | 17% | 6% | 7% | 0% | 14% | | Become smaller | 1% | 2% | 2% | 3% | 1% | 4% | 0% | 0% | | Grow moderately | 45% | 41% | 55% | 48% | 55% | 40% | 58% | 48% | | Grow substantially | 41% | 41% | 24% | 28% | 34% | 39% | 27% | 26% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – Age: Up to 5 (283, 2%), 6-10 (286,4%). More than 10 (331, 6%) – Size: 0-9 (502, 3%), 10-49 (300, 4%), 50-99 (45, 10%), 100-249 (18, 16%), 250+ (28, 12%)

It appears that, as well as exhibiting lower levels of growth over the last 3 years, firms that have been established over 10 years are also less likely to be anticipating substantial growth over the next five. 6.8.3 Growth (ASBS Definition)

Firms have been divided into four ‘growth categories’, as detailed in the panel below; a categorisation that takes account of both past and future growth. This analysis has sought to replicate, as far as is possible with the data available, an analysis of growth conducted for BERR’s Annual Small Business Survey (ASBS).

**Growth – ASBS Definition**

Firms have been classified as displaying ‘sustained growth’ if…

- Their employee numbers have grown over the last 3 years (H2)
- **And**, they are anticipating substantial growth over the next 5 years (H10)

Firms have been classified as displaying ‘contained growth’ if…

- Their employee numbers have grown over the last 3 years (H2)
- **But**, they are not anticipating substantial growth over the next 5 years (H10)

Firms have been classified as displaying ‘new growth’ if…

- Their employee numbers have not grown over the last 3 years *including firms established in the last 3 years* (H2)
- **But**, they are anticipating substantial growth over the next 5 years (H10)

Firms have been classified as displaying ‘no growth’ if…

- Their employee numbers have not grown over the last 3 years *including firms established in the last 3 years* (H2)
- **And**, they are not anticipating substantial growth over the next 5 years (H10)

The table below shows the profile of firms in respect of this definition of growth.

**Table 6.8.3.1 Growth – ASBS Definition**

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Sustained growth | 14% | 15% | 17% | 24% | 20% | 23% | 8% | 26% | 27% | 13% | | Contained growth | 17% | 16% | 19% | 5% | 0% | 30% | 26% | 0% | 14% | 0% | | New growth | 16% | 16% | 15% | 20% | 0% | 16% | 45% | 74% | 18% | 26% | | No growth | 52% | 53% | 49% | 51% | 80% | 30% | 21% | 0% | 40% | 62% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6) By this definition, around half of internationalising firms are displaying growth, with roughly equal proportions displaying ‘sustained’, ‘contained’ and ‘new’ growth.

There is some evidence to suggest that firms internationalising via their own overseas sales sites are more likely to be classified as displaying ‘sustained’ growth (i.e. the highest levels of growth).

The table below shows growth, based on the ASBS definition, analysed by both size (measured by number of employees) and age.

Table 6.8.3.2 Growth – ASBS Definition - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | |---------------------|---------------------------|-----|-------|-------|---------|------| | Up to 5 | | 14% | 25% | 11% | | | | 6-10 | | 10% | 21% | 19% | | | | > 10 | | 27% | 16% | 13% | | | | Sustained growth | | 11% | 19% | 20% | 11% | 6% | | Contained growth | | 13% | 21% | 22% | 23% | 37% | | New growth | | 17% | 15% | 18% | 16% | 19% | | No growth | | 59% | 46% | 40% | 50% | 38% | | Total | | 100%| 100% | 100% | | |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There does not appear to be any consistent pattern by either age or size of firm.

6.8.4 Growth (OECD Definition)

Additional analysis has been conducted seeking to replicate the OECD categories of growth. Again, this analysis has replicated the approach as far as possible given the data available, with the details of the analysis provided in the panel below.

Growth – OECD Definition

Firms have been defined as ‘high-growth’ if...

- Their employee numbers have grown by more than 75% over the last 3 years except firms established in the last 3 years (H2)

Firms have been defined as ‘gazelles’ if...

- Their employee numbers have grown by more than 75% over the last 3 years except firms established in the last 3 years (H2)
- And, they are less than 5 years old The table below shows the proportions of firms classified under each of the OECD growth categories.

Table 6.8.4.1 Growth – OECD Definition

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | High growth | 100% | 13% | 13% | 11% | 16% | 20% | 32% | 8% | 26% | 26% | 0% | | Gazelles | 100% | 3% | 3% | 3% | 7% | 20% | 4% | 3% | 0% | 5% | 0% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Around 1 in 8 internationalising firms display ‘high growth’ under this definition, with this figure rising to 26% amongst those with their own overseas sales site.

The table below shows growth, based on the OECD definition, analysed by both size (measured by number of employees) and age.

Table 6.8.4.2 Growth – OECD Definition - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | High growth | 16% | 25% | 8% | 12% | 15% | 11% | 18% | 7% | | Gazelles | 16% | 0% | 0% | 3% | 4% | 0% | 0% | 0% | | Total | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (44), 100-249 (18), 250+ (28)

There is no consistent pattern by either age or size of firm (beyond that expected for ‘gazelles’ given the restriction of this category to firms less than 5 years old). 6.9 Business Planning

Firms were asked to indicate whether or not they have a current, written business plan, with the following results.

Table 6.9.1 Current, Written Business Plan

| Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |---------------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Yes | 61% | 61% | 65% | 72% | 80%| 71% | 56% | 100% | 78% | 75% | | No | 33% | 34% | 31% | 28% | 20%| 22% | 26% | 0% | 17% | 25% | | Total | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%| 100%|

Base: All respondents (Base, Don’t know) – Selling direct (815, 5%), Agents/distributors (275, 4%), Licensing (26, 0%), Franchising (5, 0%), JVs/partnerships (32, 7%), Production site (20, 18%), Call centre (2, 0%), Sales site (67, 5%), R&D facility (6, 0%)

Around three-fifths of firms indicated that they do indeed have a current, written business plan. There is perhaps some evidence to suggest that firms involved in contractual arrangements and with their own overseas sites are slightly more likely to have a written plan.

The table below shows this data analysed by both size (measured by number of employees) and age.

Table 6.9.2 Current, Written Business Plan - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | 53% | 70% | 70% | 71% | 71% | | > 10 | 45% | 24% | 17% | 18% | 12% | | Total | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base, Don’t know) – Age: Up to 5 (283, 2%), 6-10 (286, 4%), More than 10 (331, 7%) – Size: 0-9 (502, 3%), 10-49 (300, 6%), 50-99 (45, 13%), 100-249 (18, 11%), 250+ (28, 18%)

Whilst larger firms (with 10 employees or more) appear to be more likely to have a current, written business plan than the smallest firms (with less than 10 employees), there is no variation by age of firm. 6.10 Displacement

Firms were asked to indicate the location of their main competitors, in terms of whether these were domestic or overseas firms.

Table 6.10.1 Displacement – Location of Main Competitors

| Mode | Total | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |---------------|-------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | UK-based | 39% | 39% | 25% | 20% | 20% | 19%| 3% | 0% | 17% | 38% | | Overseas-based| 19% | 18% | 30% | 31% | 40% | 36%| 37% | 26% | 28% | 36% | | Both | 39% | 40% | 42% | 47% | 40% | 43%| 57% | 74% | 54% | 13% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All respondents (Base, Have no competitors) – Selling direct (815, 2%), Agents/distributors (275, 2%), Licensing (26, 2%), Franchising (5, 0%), JVs/partnerships (32, 0%), Production site (20, 3%), Call centre (2, 0%), Sales site (67, 1%), R&D facility (6, 13%)

Approaching three-fifths of firms indicated that at least some of their main competitors are based overseas. Indications are that this proportion is higher for those operating overseas sites (with the figure 82% for those with overseas sales sites).

The table below shows this data analysed by both size (measured by number of employees) and age.

Table 6.10.2 Displacement – Location of Main Competitors - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | | | | | | | > 10 | | | | | | | UK-based | 43% | 45% | 35% | | | | Overseas-based | 19% | 15% | 20% | | | | Both | 34% | 36% | 42% | | | | Total | 100%| 100% | 100% | | |

Base: All respondents (Base, Have no competitors) – Age: Up to 5 (283, 2%), 6-10 (286, 3%), More than 10 (331, 2%) – Size: 0-9 (502, 3%), 10-49 (300, 1%), 50-99 (45, 0%), 100-249 (18, 0%), 250+ (28, 0%)

There is some evidence to suggest that both older and larger firms are more likely to see overseas firms making up at least some of their main competition. 6.11 Usage of UKTI Trade Support Services

Firms were asked a series of questions to determine awareness of both UKTI and UKTI’s key products and services (details provided in Chapter 11). Those aware of at least one of these products/services, or UKTI itself, where then asked to indicate whether or not they had used any of them. This data has been used to categorise firms into UKTI users and non-users, with the following results.

Table 6.11.1 UKTI User?

| Mode | Direct | Agents / Distrib | Licensing | Franchising | JV Production | Call centre | Sales | R&D | |---------------|--------|------------------|-----------|-------------|---------------|-------------|-------|-----| | Yes | 35% | 36% | 46% | 50% | 60% | 37% | 42% | 0% | 36% | 13% | | No | 65% | 64% | 54% | 50% | 40% | 63% | 58% | 100%| 64% | 87% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100%| 100%| 100%|

Base: All respondents (Base) – Selling direct (815), Agents/distributors (275), Licensing (26), Franchising (5), JVs/partnerships (32), Production site (20), Call centre (2), Sales site (67), R&D facility (6)

Around a third of internationalising firms indicated that they have used UKTI products or services.

The table below shows UKTI usage analysed by both size (measured by number of employees) and age.

Table 6.11.2 UKTI User? - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Yes | 34% | 35% | 35% | 30% | 41% | 50% | 42% | 28% | | No | 66% | 65% | 65% | 70% | 59% | 50% | 58% | 72% | | Total | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

Whilst usage levels do not seem to vary with age of firm, it appears that the very smallest firms (with less than 10 employees) and the very largest (with 250 or more employees) are less likely to have used UKTI services than those in the 10-249 range. 7. Drivers of Geographical Focus

7.1 Drivers of Geographical Focus (Summary)

Once it had been established which of the various internationalisation modes firms were involved in, one mode was selected at random (by CATI) for them to focus on for the sections of the interview relating to drivers or geographical focus, drivers of mode and barriers. Firms were also asked to focus on just one market, with the market that had presented them with the greatest challenges in relation to the mode in question selected in cases where they were operating via the selected mode in more than one market. In cases where the firm did not feel able to pinpoint a single, ‘challenging’ market the interviewer asked them to focus on the one they had started doing business in most recently via the chosen mode (this applied to only around 1 in 10 firms).

With specific reference to the selected market, interviewers read out the following:

I’m going to read out some of the individual circumstances that other firms have found themselves in when looking at doing business in specific overseas locations and I’d like you to tell me the extent to which each one applied to you when you were FIRST CONSIDERING < SELECTED MODE > in < MARKET >.

Please give me a score of 1 to 5, where 5 means that it is completely applicable and 1 means that it is not at all applicable.

Firms were then read out a list of five statements, and asked to rate each one on the above 5-point scale. The chart below shows the proportion of firms giving a score of 4 or 5 on this scale. Details of the full distribution of scores are shown later in this Chapter.

Table 7.1.1 Drivers of Geographical Focus

| % scoring 4 or 5 | Total | Mode | |------------------|-------|------| | | | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | Received an approach | 59% | 61% | 55% | 46% | 50% | 74% | 47% | 0% | 47% | 26% | | Suggested by someone external | 30% | 28% | 29% | 36% | 100% | 65% | 38% | 74% | 46% | 87% | | Someone internal with experience | 34% | 32% | 36% | 72% | 50% | 55% | 29% | 100% | 56% | 0% | | Considering a number of markets | 19% | 17% | 23% | 13% | 50% | 22% | 53% | 74% | 53% | 51% | | Identified internally as opportunity | 49% | 46% | 55% | 59% | 100% | 35% | 38% | 26% | 88% | 100% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

A large proportion of firms (59%) indicated that ‘we had received an approach from someone in (this market)’ applied to them, giving a score of 4 or 5 on the 5-point scale. It appears that this is particularly likely to apply to those choosing to sell direct, but is a key factor across all modes. Firms having ‘identified internally that (this market) offered a potential opportunity’ is also a popular driver of geographical focus, applying to around half of firms overall and particularly those operating overseas sales sites.

Amongst those selling direct, through agents or distributors, or engaging in contractual arrangements only a minority indicated having ‘been considering a number of countries at the time, and decided to focus on (this market)’. Amongst those setting up their own overseas site however this was far more popular, applying in around half of cases.

Immediately after being questioned on these specific potential drivers, firms were provided with an opportunity to describe, in their own words, any other major reasons for looking at this particular market. These responses have been coded into common themes and the most popular answers (mentioned by 5% or more of firms) are shown in the table below.

Table 7.1.2 Drivers of Geographical Focus – Any Other Reasons? (Unprompted)

| Top mentions (5%+) | Total | Mode | Own Site | |--------------------|-------|------|----------| | | Direct| Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | None | 49% | 53% | 42% | 23% | 0% | 31% | 43% | 0% | 29% | 26% | | Someone approached us | 10% | 11% | 9% | 13% | 50% | 17% | 0% | 0% | 5% | 0% | | A large/growing market | 6% | 4% | 10% | 9% | 0% | 22% | 14% | 0% | 5% | 0% | | Existing customers/contacts in the area | 5% | 4% | 9% | 13% | 0% | 0% | 0% | 0% | 12% | 0% | | Total | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100%| 100%| 100%|

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

Around half of firms had nothing further to add, and amongst those that did pass comment a wide variety of issues were raised. Interestingly, the most popular included aspects already covered by prompted questioning, i.e. that there had been an approach made to the firm in relation to this specific market, that the firm had recognised the size of the market in question as making it an opportunity for them, or that they already had customers in the area. This indicates that the prompted questions are adequately covering the key drivers of geographical focus. A selection of the comments made by individual firms is provided below.

“We were approached, that’s the only major reason” – Selling direct

“It just developed. We had a client who wanted to do business there” – Selling direct

“We were given the work by an existing client” – Selling direct

“The opportunity arose rather than us actually looking for it” – Selling direct

“We have a major customer who has a plant there, and they wanted a supplier that has a local base” - Licensing

“The market was ready there, and we estimated them to be positively predisposed to our offering” – Licensing

“It is a developed country with a large population and healthcare spending is big” – Licensing

“The size of the market, in terms of the potential” – Selling direct

“It was the obvious market to export in (our sector)” – Selling direct

“Opportunity. There’s a requirement for the goods we provide, and we took advantage” – Agent/distributor

“One of the directors is from the USA, and so we have contacts” – Overseas site (sales)

“We have existing relationships in Morocco” – Selling direct

“Because they were an old contact” – Agents/distributors

“I’m Greek. I have family and friends there, and they introduced me to the market” – Selling direct

“We had some connections out there which we followed up on” – Agents/distributors The five drivers of choice of geographical focus firms were prompted with have been summarised further as outlined below.

**Drivers Of Geographical Focus - Summary**

Firms have been defined as being motivated to a significant extent by ‘networks & serendipity’ if they scored 4 or 5 on a 5-point scale for…

- Received an approach from someone in the market
- Or, it had been suggested to them by an external source that the market might offer them an opportunity
- Or, Someone in the company already had connections in that market

Firms have been defined as being motivated to a significant extent by ‘independent analysis’ if they scored 4 or 5 on a 5-point scale for…

- Had been considering a number of markets and decided to focus on this one
- Or, Identified internally that the market offered a potential opportunity for them

Firms have been defined as ‘solely reactive’ if…

- They score 4 or 5 for ‘received an approach from someone in the market’
- But did not score 3, 4 or 5 for having connections, considering a number of markets or internal identification of an opportunity

The table below shows the proportions of firms scoring against each of these summary categories.

**Table 7.1.3 Drivers of Geographical Focus (Summary)**

| % scoring | Total | Mode | Own Site | |--------------------|-------|------|----------| | | Direct| Agents/Distrib| Licensing| Franchising| JV| Production| Call centre| Sales| R&D | | Networks & serendipity | 81% | 80% | 84% | 95% | 100% | 91% | 86% | 100% | 90% | 87% | | Independent analysis | 53% | 49% | 61% | 59% | 100% | 39% | 53% | 100% | 95% | 100% | | Solely reactive | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

This analysis clearly demonstrates that whilst independent analysis is certainly an important factor, it only applies to around half of all internationalising firms. As many as 81% score against the ‘networks & serendipity’ measure, which provides a clear indication of the strong role that existing contacts and the element of chance play in firms’ path to internationalisation. This balance between 'independent analysis' and 'networks & serendipity' is similar for those selling both directly and through agents/distributors and those involved in contractual arrangements, but there is evidence to suggest a more deliberate approach is adopted amongst those with their own overseas site, with 'independent analysis' as important a factor as 'networks & serendipity' for this group.

Overall, 15% of firms are classified as 'solely reactive', essentially selecting the market in question purely as a result of enquiries received. However, and as expected, this did not apply in any of the cases where firms had set up their own overseas site.

7.2 Drivers of Geographical Focus (Detailed)

7.2.1 Received An Approach

The chart below shows the full distribution of scores on the 5-point scale for the statement 'we had received an approach from someone in (this market)'.

Chart 7.2.1 We Had Received An Approach From Someone In <Market>

Around half of firms indicated that this was 'completely applicable' to them, scoring 5 on the 5-point scale. Only around a quarter indicated that this was 'not at all applicable' to them in this particular instance (although this does rise to a third amongst those operating their own overseas sales site). 7.2.2 Suggested By Someone External

Firms were also asked to indicate the extent to which ‘it had been suggested to us by someone external to the company that (this market) might be an opportunity for us’, with the following results.

Chart 7.2.2 Suggested By Someone External

Only around 1 in 5 firms felt that this was ‘completely applicable’ to them, rising to approaching a third if scores of 4 or 5 out of 5 are taken into account. Half felt that it was ‘not at all applicable.’ 7.2.3 Someone Internal With Experience

The chart below shows the full distribution of scores on the 5-point scale for the statement ‘there was someone within the company who already had experience of (this market)’.

Chart 7.2.3 There Was Someone Within The Company Who Already Had Experience Of <Market>

Around a quarter of firms indicated that this was ‘completely applicable’ to them. This appears to be particularly likely to be the case for those involved in contractual arrangements and overseas sites (although not R&D sites on the evidence of the six firms taking part in this study with this type of facility). 7.2.4 Considering A Number of Markets

The chart below shows the full distribution of scores on the 5-point scale for the statement ‘we had been considering a number of countries at the time, and decided to focus on (this market)’.

Chart 7.2.4 We Had Been Considering A Number of Countries At The Time, And Decided To Focus On <Market>

More than half of firms indicated that this was ‘not at all applicable’ to them, with a further 15% scoring just 2 out of 5. Only around 1 in 8 firms indicated that this was ‘completely applicable’, although this rises to more than two-fifths amongst those with an overseas sales site. 7.2.5 Identified Internally As An Opportunity

The chart below shows the full distribution of scores on the 5-point scale for the statement ‘we had identified internally that (this market) offered a potential opportunity for us’.

Chart 7.2.5 We Had Identified Internally That <Market> Offered A Potential Opportunity For Us

Just 28% of firms indicated that they feel that this is ‘not at all applicable’ to them and 36% that this is ‘completely applicable’. As many as three-quarters of those with overseas sales sites indicated that this is ‘completely applicable’ to them. 7.3 Market Perceptions (Summary)

Firms were also asked a series of questions about their perceptions of the chosen market in respect to a number of characteristics (covering the ease of doing business there, perceptions on levels of demand/costs and levels of risk), to help shed further light on drivers of geographical focus. This approach was favoured over a more direct questioning approach (asking firms to indicate whether various aspects of the market in question ‘drove’ them to pursue this market via the selected mode) after problems getting the concept across in a telephone interview environment without respondents misinterpreting the question.

Again, respondents were asked to answer on a 5-point scale, but with semantic scales favoured over numeric scales on this occasion to aid correct interpretation of the questions. The table below shows summarised results, with the proportion not scoring in the top two boxes shown. For example, firms were asked ‘how easy has it been for you to find customers in (this market). Was it very easy, fairly easy, average, fairly hard or very hard.’ The proportion not indicating that it was ‘fairly hard’ or ‘very hard’ is shown in the table below; i.e. the proportion not perceiving difficulties in this respect (which we interpret as indicating a draw towards the market). The exception to this is the level of demand, where the proportion indicating that it is ‘fairly high’ or ‘very high’ is shown.

Please note that firms were not asked to rate aspects of the market that were not relevant to the mode in question. For example, if the mode did not involve any form of partnership then they were not asked to rate the ‘ease of finding suitable partners’. It should be noted that the ‘total’ results shown in the table below represent the total across just those modes for which the aspect has been rated.

Table 7.3.1 Drivers of Geographical Focus (Perceptions Of The Market)

| % not scoring 4 or 5 | Total | Mode | |----------------------|-------|------| | | Direct| Agents/Distrib| Licensing| Franchising| JV| Production| Call centre| Sales| R&D | | Ease of finding customers | 82% | 82% | X | X | X | 95% | 62% | 26% | 85% | 26% | | Ease of finding suitable partner | 80% | X | 77% | 95% | 100% | 95% | X | X | X | X | | Ease of negotiating framework | 75% | 75% | 80% | 86% | 50% | 91% | 43% | 0% | 54% | 87% | | Ease of logistics of doing business | 74% | 75% | 71% | 82% | 100% | 74% | 72% | 26% | 66% | 87% | | Ease of product modification | 94% | 94% | 95% | 82% | 50% | 87% | 100% | 100% | 92% | 100% | | Ease of negotiation lang/culture | 84% | 84% | 82% | 82% | 50% | 91% | 72% | 26% | 83% | 64% | | Ease of IP protection | 85% | 87% | 82% | 77% | 50% | 61% | 86% | 26% | 88% | 64% | | Risk: getting paid | 81% | 80% | 82% | 82% | 100% | 83% | 86% | 100% | 88% | 87% | | Risk: guaranteeing quality | 79% | 78% | 82% | 69% | 50% | 78% | 67% | 100% | 97% | 87% | | Risk: return on investment | 73% | 71% | 78% | 82% | 100% | 78% | 72% | 100% | 93% | 75% | | Ease of staff recruitment/retention | 78% | X | X | X | X | X | 72% | 100% | 80% | 75% | | Cost of resources | 80% | X | X | X | X | X | 100% | 100% | 64% | 100% | | Level of demand\* | 35% | 33% | 39% | 59% | 50% | 35% | 19% | 0% | 68% | 26% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

- Figures shown are for % scoring 4 or 5 (i.e. high demand)

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6) This analysis indicates that all of the above factors included are important for large numbers of internationalising firms in respect of the markets they choose to pursue not presenting difficulties in these respects. The potential exception is demand, although the methodological difference in how this particular measure is constructed should be taken into account when interpreting this result.

There is some evidence to suggest some differences for those operating overseas sites, for which issues such as the ease of negotiating the business framework and the logistics of doing business are less important, but perceptions in respect of the level of demand more important.

These 13 elements of market have been summarised further into 6 themes as outlined below.

| Market Perceptions - Summary | |------------------------------| | Firms have been defined as perceiving the market favourably with respect to ‘contacts’ if they do not score 4 (fairly hard) or 5 (very hard) on a 5-point scale for… | | • Ease of finding customers | | • And, the ease of finding a suitable partner | | Firms have been defined as perceiving the market favourably with respect to ‘practicalities’ if they do not score 4 (fairly hard) or 5 (very hard) on a 5-point scale for… | | • Ease of negotiating the legal & regulatory framework or standards | | • And, the ease of dealing with the logistics of doing business | | • And, the ease of making product/service modifications (including those making no product/service modifications) | | Firms have been defined as perceiving the market favourably with respect to ‘language & culture’ if they do not score 4 (fairly hard) or 5 (very hard) on a 5-point scale for… | | • Ease of negotiating the culture and language | | Firms have been defined as perceiving the market favourably with respect to ‘risk & IP’ if they do not score 4 or 5 on a 5-point scale for … | | • Ease of protecting your Intellectual Property (not 4 (fairly hard) or 5 (very hard)) | | • And, risk of ensuring you get paid and enforcing contracts (not 4 (fairly high risk) or 5 (very high risk)) | | • And, being able to guarantee the quality of the goods or services provided (not 4 (fairly high risk) or 5 (very high risk)) | | • And, the financial risk in terms of ensuring a return on investment (not 4 (fairly high risk) or 5 (very high risk)) | Firms have been defined as perceiving the market favourably with respect to ‘resources’ if they scored as follows…

- Ease of recruiting and retaining suitable staff (not 4 (fairly hard) or 5 (very hard))
- Or, the cost of resources in comparison with the UK (not 4 (fairly hard) or 5 (very hard))

Firms have been defined as perceiving the market favourably with respect to ‘demand’ if they scored 4 (fairly high) or 5 (very high) on a 5-point scale for…

- The potential level of demand for products/services

The table below shows the proportions of firms scoring against each of these summary categories, with the ‘networks & serendipity’, ‘independent analysis’, and ‘solely reactive’ categories outlined earlier in this Chapter also included.

Table 7.3.2 Drivers of Geographical Focus (Including Market Perceptions) (Summary)

| % scoring | Total | Mode | Own Site | |--------------------|-------|------|----------| | | Direct| Agents/Distrib| Licensing| Franchising| JV| Production| Call centre| Sales| R&D | | Networks & serendipity | 81% | 80% | 84% | 95% | 100% | 91% | 86% | 100% | 90% | 87% | | Independent analysis | 53% | 49% | 61% | 59% | 100% | 39% | 53% | 100% | 95% | 100% | | Solely reactive | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | Contacts | 81% | 82% | 77% | 95% | 100% | 95% | 62% | 26% | 85% | 26% | | Practicalities | 62% | 62% | 63% | 68% | 50% | 65% | 43% | 0% | 47% | 75% | | Language & culture | 84% | 84% | 82% | 82% | 50% | 91% | 72% | 26% | 83% | 64% | | Risk & IP | 63% | 63% | 64% | 59% | 50% | 61% | 53% | 26% | 71% | 39% | | Resources | 65% | X | X | X | X | X | 72% | 100% | 56% | 75% | | Demand | 35% | 33% | 39% | 59% | 50% | 35% | 19% | 0% | 68% | 26% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100%| 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

This analysis clearly highlights ‘contacts’ and ‘language & culture’ as key, alongside ‘networks & serendipity’ across all modes.

There is, however, some evidence to suggest some differences for those operating overseas sales sites, with ‘practicalities’ less important for this group but ‘demand’ more important. The table below provides analysis of the above drivers of geographical focus by age of firm, both at the total level and within mode. Please note that contractual arrangements (i.e. licensing, franchising and other partnerships/JVs) have been grouped for this analysis, as have the various types of overseas sites, but base sizes are still very small and results should be treated as indicative only.

Table 7.3.3 Drivers of Geographical Focus (Including Market Perceptions) – By Age Of Firm (And Mode)

| % scoring | Total | Mode/Age | Direct | Agents/Distributors | |----------------------------|-------|----------|--------|---------------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | Networks & serendipity | 84% | 84% | 80% | 85% | 84% | 77% | 74% | 79% | 87% | | Independent analysis | 57% | 55% | 51% | 54% | 52% | 47% | 57% | 55% | 63% | | Solely reactive | 13% | 17% | 16% | 14% | 20% | 19% | 10% | 10% | 8% | | Contacts | 80% | 78% | 82% | 81% | 80% | 84% | 76% | 69% | 79% | | Practicalities | 61% | 57% | 63% | 60% | 57% | 64% | 62% | 62% | 63% | | Language & culture | 83% | 83% | 84% | 80% | 84% | 86% | 95% | 76% | 81% | | Risk & IP | 67% | 59% | 63% | 67% | 60% | 63% | 67% | 55% | 66% | | Resources | 81% | 50% | 64% | X | X | X | X | X | X | | Demand | 42% | 35% | 33% | 41% | 34% | 30% | 40% | 31% | 40% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Contractual Arrangements | Overseas site | |----------------------------|--------------------------|---------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | Networks & serendipity | 80% | 86% | 100% | 100% | 88% | 86% | | Independent analysis | 50% | 57% | 50% | 88% | 94% | 79% | | Solely reactive | 30% | 14% | 10% | 0% | 0% | 0% | | Contacts | 90% | 86% | 100% | 69% | 81% | 64% | | Practicalities | 60% | 14% | 80% | 63% | 56% | 36% | | Language & culture | 90% | 57% | 90% | 81% | 94% | 64% | | Risk & IP | 80% | 29% | 60% | 75% | 69% | 50% | | Resources | X | X | X | 81% | 50% | 64% | | Demand | 50% | 29% | 50% | 50% | 69% | 36% | | Total | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Total: Up to 5 (283), 6-10 (286), More than 10 (331), Selling direct: Up to 5 (215), 6-10 (221), More than 10 (245), Agents/distributors: Up to 5 (42), 6-10 (42), More than 10 (62), Contractual arrangements: Up to 5 (10), 6-10 (7), More than 10 (10), Overseas site: Up to 5 (16), 6-10 (16), More than 10 (14)

Interestingly, the pattern in terms of drivers of geographical focus is very similar for firms within each of the three age groups. The table below provides an analysis of the drivers of geographical focus by emerging/fast growing markets(^8) and ‘others’. Please note that small base sizes restrict robust analysis by individual markets(^9).

Table 7.3.4 Drivers of Geographical Focus (Including Market Perceptions) – By Market (And Mode)

| % scoring | Total | Mode/Market | |----------------------------|-------|-------------| | | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | | Networks & serendipity | 78% | 83% | 75% | 82% | 81% | 85% | 88% | 96% | 91% | 88% | | Independent analysis | 58% | 51% | 54% | 47% | 63% | 59% | 50% | 52% | 88% | 81% | | Solely reactive | 11% | 17% | 12% | 20% | 11% | 7% | 6% | 21% | 0% | 0% | | Contacts | 80% | 82% | 80% | 83% | 83% | 74% | 100% | 93% | 64% | 73% | | Practicalities | 54% | 65% | 54% | 65% | 59% | 64% | 55% | 72% | 43% | 49% | | Language & culture | 77% | 86% | 78% | 87% | 81% | 83% | 72% | 93% | 58% | 88% | | Risk & IP | 53% | 67% | 53% | 67% | 57% | 68% | 40% | 72% | 43% | 73% | | Resources | 67% | 63% | X | X | X | X | X | 67% | 63% | | Demand | 44% | 31% | 41% | 30% | 52% | 33% | 61% | 38% | 43% | 49% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Fast growing (253), Other (647), Selling direct: Fast growing (184), Other (497), Agents/distributors: Fast growing (40), Other (106), Contractual arrangements: Fast growing (10), Other (17), Overseas site: Fast growing (19), Other (27)

There is some evidence to suggest some differences between fast growing markets and others, with those firms operating in fast growing markets more likely to be driven by some of the more proactive elements, including ‘independent analysis’ and ‘demand’, and less likely to be driven by ‘networks & serendipity’, ‘practicalities’, ‘language & culture’ and ‘risk & IP’. However, it should be noted that even for this group the overall pattern of ‘contacts’ and ‘language & culture’, alongside ‘networks & serendipity’ as being the key drivers still holds.

______________________________________________________________________

(^8) For the purposes of this study, emerging/fast growing markets cover the UKTI priority fast growing markets as identified in UKTI’s five year strategy published in 2006 ‘Prosperity in a Changing World’, i.e. Brazil, China, GCC countries (Saudi Arabia and UAE), India, Indonesia, Mexico, Russia, South Africa, Turkey, Malaysia, Qatar, Singapore, South Korea, Thailand and Vietnam.

(^9) Annex A contains details of numbers of interviews conducted for individual markets. The table below provides an analysis of the drivers of geographical focus by overseas business experience (measured by the number of years the firm has been involved in overseas business activity).

Table 7.3.5 Drivers of Geographical Focus (Including Market Perceptions) – By Experience (And Mode)

| % scoring | Total | Mode/Experience (Number of Years) | |-----------|-------|----------------------------------| | | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | | Networks & serendipity | 77% | 83% | 81% | 76% | 82% | 78% | 73% | 82% | 88% | | Independent analysis | 57% | 50% | 55% | 51% | 49% | 49% | 75% | 48% | 69% | | Solely reactive | 16% | 17% | 14% | 19% | 19% | 16% | 6% | 8% | 10% | | Contacts | 83% | 81% | 81% | 83% | 82% | 83% | 88% | 77% | 74% | | Practicalities | 64% | 61% | 61% | 64% | 62% | 63% | 66% | 67% | 57% | | Language & culture | 85% | 83% | 84% | 84% | 83% | 86% | 94% | 83% | 79% | | Risk & IP | 68% | 64% | 60% | 66% | 64% | 61% | 75% | 69% | 57% | | Resources | 83% | 60% | 63% | X | X | X | X | X | X | | Demand | 41% | 35% | 32% | 39% | 34% | 29% | 42% | 39% | 38% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Less than 2 (182), 2-10 (515), More than 10 (199), Selling direct: Less than 2 (140), 2-10 (394), More than 10 (144), Agents/distributors: Less than 2 (25), 2-10 (78), More than 10 (42), Contractual arrangements: Less than 2 (5), 2-10 (17), More than 10 (5), Overseas site: Less than 2 (12), 2-10 (26), More than 10 (8)

As with age of firm, the pattern in terms of drivers of geographical focus is very similar regardless of experience. The table below provides an analysis of the drivers of geographical focus by the number of markets firms are doing business in.

Table 7.3.6 Drivers of Geographical Focus (Including Market Perceptions) – By Number of Markets (And Mode)

| % scoring | Total | Mode/Number of Markets | |----------------------------|-------|------------------------| | | | Direct | Agents/Distributors | | | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | Networks & serendipity | | | | | | | | | | | 78% | 85% | 84% | 76% | 85% | 82% | | | | 77% | 86% | 86% | 77% | 86% | 86% | | Independent analysis | | 48% | 53% | 59% | 44% | 52% | 56% | | | | 68% | 52% | 62% | 68% | 52% | 62% | | Solely reactive | | 20% | 15% | 9% | 23% | 16% | 12% | | | | 2% | 17% | 7% | 2% | 17% | 7% | | Contacts | | 83% | 80% | 79% | 85% | 78% | 82% | | | | 81% | 83% | 70% | 81% | 83% | 70% | | Practicalities | | 68% | 60% | 54% | 68% | 59% | 54% | | | | 68% | 66% | 57% | 68% | 66% | 57% | | Language & culture | | 87% | 80% | 81% | 87% | 79% | 84% | | | | 94% | 79% | 77% | 94% | 79% | 77% | | Risk & IP | | 68% | 66% | 54% | 68% | 62% | 55% | | | | 66% | 75% | 55% | 66% | 75% | 55% | | Resources | | 71% | 86% | 47% | X | X | X | | | | 71% | 88% | 47% | X | X | X | | Demand | | 27% | 38% | 44% | 26% | 36% | 42% | | | | 32% | 40% | 43% | 32% | 40% | 43% | | Total | | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Up to 5 (434), 6-10 (217), More than 10 (245), Selling direct: Up to 5 (356), 6-10 (162), More than 10 (161), Agents/distributors: Up to 5 (47), 6-10 (43), More than 10 (55), Contractual arrangements: Up to 5 (11), 6-10 (3), More than 10 (13), Overseas site: Up to 5 (20), 6-10 (9), More than 10 (16)

There is evidence to suggest that those involved in fewer markets are more likely to be classified as ‘solely reactive’ and less likely to be responding to ‘independent analysis’ or perceive the market as holding a high demand. The table below provides an analysis of the drivers of geographical focus by the various measures of innovation (including IP activity).

Table 7.3.7 Drivers of Geographical Focus (Including Market Perceptions) – By Innovation/IP (And Mode)

| % scoring | Total | Mode/Innovation & IP | |-----------|-------|----------------------| | | | Direct | | | | Innovative (alt) | | | | Innovative | | | | Non-innovative | | | | IP Active | | | | Young tech intensive | | | | Innovative (alt) | | | | Innovative | | | | Non-innovative | | | | IP Active | | | | Young tech intensive | | Networks & serendipity | 82% | 83% | 78% | 82% | 84% | 81% | 82% | 77% | 82% | 86% | | Independent analysis | 57% | 56% | 45% | 61% | 58% | 53% | 51% | 45% | 60% | 55% | | Solely reactive | 15% | 15% | 16% | 14% | 14% | 19% | 18% | 17% | 18% | 16% | | Contacts | 77% | 79% | 87% | 79% | 80% | 78% | 80% | 87% | 80% | 80% | | Practicalities | 51% | 57% | 74% | 51% | 56% | 51% | 57% | 74% | 49% | 56% | | Language & culture | 80% | 82% | 89% | 79% | 83% | 81% | 83% | 87% | 81% | 81% | | Risk & IP | 58% | 61% | 70% | 59% | 64% | 59% | 61% | 69% | 57% | 62% | | Resources | 54% | 58% | 93% | 78% | 75% | X | X | X | X | X | | Demand | 40% | 38% | 26% | 45% | 43% | 38% | 36% | 26% | 43% | 41% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Mode/Innovation & IP | |-----------|----------------------| | | Agents/Distributors | | | Contractual Arrangements | | | Innovative (alt) | | | Innovative | | | Non-innovative | | | IP Active | | | Young tech intensive | | | Innovative (alt) | | | Innovative | | | Non-innovative | | | IP Active | | | Young tech intensive | | Networks & serendipity | 78% | 83% | 89% | 75% | 71% | 97% | 95% | 79% | 100% | 80% | | Independent analysis | 65% | 65% | 37% | 65% | 63% | 63% | 57% | 0% | 52% | 50% | | Solely reactive | 7% | 9% | 6% | 6% | 6% | 10% | 14% | 21% | 8% | 30% | | Contacts | 74% | 75% | 92% | 73% | 74% | 93% | 95% | 100% | 96% | 90% | | Practicalities | 57% | 59% | 84% | 57% | 57% | 53% | 66% | 59% | 66% | 60% | | Language & culture | 82% | 80% | 97% | 67% | 94% | 80% | 86% | 79% | 85% | 90% | | Risk & IP | 61% | 63% | 74% | 63% | 63% | 40% | 57% | 79% | 56% | 80% | | Resources | X | X | X | X | X | X | X | X | X | X | | Demand | 41% | 40% | 21% | 44% | 46% | 56% | 52% | 0% | 55% | 50% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | | % scoring | Mode/Innovation & IP | Overseas Site | |----------------------------|----------------------|---------------| | | Innovative (alt) | Innovative | Non-innovative | IP Active | Young tech intensive | | Networks & serendipity | 90% | 89% | 93% | 89% | 100% | | Independent analysis | 85% | 89% | 65% | 74% | 83% | | Solely reactive | 0% | 0% | 0% | 0% | 0% | | Contacts | 65% | 69% | 70% | 74% | 83% | | Practicalities | 31% | 42% | 65% | 34% | 58% | | Language & culture | 62% | 69% | 100% | 85% | 75% | | Risk & IP | 49% | 54% | 85% | 74% | 83% | | Resources | 54% | 58% | 93% | 78% | 75% | | Demand | 47% | 49% | 35% | 56% | 58% | | Total | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Innovative (alternative) (418), Innovative (659), Non-innovative (241), IP active (267), Young & innovative or IP active (210), Selling direct: Innovative (alternative) (289), Innovative (475), Non-innovative (206), IP active (188), Young & innovative or IP active (153), Agents/distributors: Innovative (alternative) (86), Innovative (124), Non-innovative (22), IP active (49), Young & innovative or IP active (35), Contractual arrangements: Innovative (alternative) (18), Innovative (24), Non-innovative (3), IP active (15), Young & innovative or IP active (10)

There is some evidence to suggest that innovative firms (defined either through the main ‘innovative’ firms definitions or via IP activity) are more likely than those classified as ‘non-innovative’ to perceive difficulties with their chosen market in all areas. That said, they are also more likely to be driven by ‘independent analysis’ and to perceive the demand in this market as either ‘fairly’ or ‘very’ high.

This is the case for innovation measured via the main ‘innovative firms’ definitions as well as through IP activity, and for young, technology intensive firms. The table below provides an analysis of the drivers of geographical focus by usage of UKTI.

Table 7.3.8 Drivers of Geographical Focus (Including Market Perceptions) – By Usage Of UKTI (And Mode)

| % scoring | Total | Mode/Usage of UKTI | Direct | Agents/Distrib | Contractual Arrangements | Overseas Site | |----------------------------|-------|--------------------|--------|----------------|--------------------------|---------------| | | User | Non-user | User | Non-user | User | Non-user | | Networks & serendipity | 82% | 81% | 81% | 79% | 81% | 85% | 93% | 93% | 83% | 91% | | Independent analysis | 62% | 48% | 57% | 45% | 71% | 52% | 74% | 40% | 77% | 86% | | Solely reactive | 11% | 18% | 13% | 20% | 8% | 9% | 0% | 22% | 0% | 0% | | Contacts | 79% | 83% | 79% | 84% | 76% | 78% | 86% | 100% | 77% | 67% | | Practicalities | 57% | 64% | 58% | 64% | 57% | 67% | 33% | 80% | 48% | 46% | | Language & culture | 82% | 84% | 83% | 85% | 82% | 83% | 74% | 90% | 77% | 74% | | Risk & IP | 59% | 66% | 59% | 65% | 60% | 68% | 35% | 71% | 60% | 60% | | Resources | 60% | 66% | X | X | X | X | X | X | X | X | | Demand | 40% | 32% | 38% | 30% | 41% | 37% | 86% | 28% | 48% | 46% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Users (311), Non-users (589), Selling direct: Users (225), Non-users (456), Agents/distributors: Users (66), Non-users (80), Contractual arrangements: Users (9), Non-users (18), Overseas site: Users (11), Non-users (35)

Encouragingly, users of UKTI trade support services are more likely to be motivated by ‘independent analysis’ in their choice of market, and less likely to be classified as ‘solely reactive’. They are also more likely to perceive their chosen market as having ‘fairly’ or ‘very’ high demand. 7.4 Market Perceptions (Detailed)

7.4.1 Ease Of Finding Customers

The chart below shows firms’ perceptions of their chosen market in respect of ‘how easy of difficult has it been for you to find customers in (that market)’. Those firms with overseas production sites, call centres and R&D facilities not selling to customers in this market were not asked this question, and are shown as a separate category in the analysis.

Although only around 1 in 6 of firms engaged in relevant internationalisation activities indicated that they had found it difficult to find customers, it is interesting to note that only around a quarter indicated that it had been ‘very easy’. 7.4.2 Ease Of Finding A Suitable Partner

For the relevant modes (i.e. selling through agents or distributors and contractual arrangements), firms were also asked ‘how easy or difficult has it been to for you to find a suitable partner’. Please note the small base sizes when interpreting these results.

Chart 7.4.2 Ease Of Finding A Suitable Partner

Around a fifth of firms involved in these modes felt that it had been difficult to find a suitable partner, but just under half had found it either ‘fairly’ or ‘very’ easy. 7.4.3 Ease Of Negotiating Framework

Firms were also asked ‘how easy or difficult has it been for you to negotiate the legal and regulatory framework or standards in (this market)’.

Interestingly, only 1 in 6 firms felt that this had been ‘very easy’, with around a quarter reporting that it had been either ‘fairly’ or ‘very’ difficult. 7.4.4 Ease Of Logistics Of Doing Business

The chart below shows firms’ perceptions of their chosen market in respect of ‘how easy or difficult has it been for you to deal with the logistics of doing business in (this market)’.

Chart 7.4.4 Ease Of Dealing With The Logistics Of Doing Business In <Market>

Whilst around a quarter of firms felt that it was difficult to deal with the logistics of doing business in this market, more than half felt that it was easy. 7.4.5 Ease Of Product Modification

Firms were also asked to indicate whether they had had to modify any of their products or services for customers in this market, and if so ‘how easy or difficult has it been for you to make any modifications to your products or services so that they are suitable for customers in (this market)’.

Chart 7.4.5 Ease Of Making Modifications To Products/Services So That They Are Suitable For Customers In <Market>

This analysis clearly shows that those needing to make modifications to their products or services are in the minority (applying to less than a third of firms). Amongst those that have had to do this, only a small proportion reported difficulties. 7.4.6 Ease Of Negotiating The Language And Culture

Firms were also asked ‘how easy or difficult has it been for you to negotiate the culture and language in (this market)’.

Chart 7.4.6 Ease Of Negotiating The Language And Culture

Those reporting that it has been ‘very difficult’ to negotiate the language and culture are very much in the minority (just 1 in 20 firms), with approaching two-thirds feeling that this was either ‘fairly’ or ‘very’ easy. 7.4.7 Ease Of IP Protection

The chart below shows firms’ perceptions of their chosen market in respect of ‘how easy or difficult has it been for you to protect your Intellectual Property’.

Chart 7.4.7 Ease Of IP Protection

Overall, 15% of firms reported difficulties in this respect, with approaching two-fifths feeling that it had been either ‘fairly’ or ‘very’ easy and a further 29% that IP protection was not relevant for them. Problems in this respect do appear to be more commonplace amongst those selling through agents or distributors in comparison with those selling direct, but still only around a fifth of this group felt that this had been either ‘fairly’ or ‘very’ difficult. 7.4.8 Ensuring You Get Paid And Enforcing Contracts

Firms were also asked about their views of the risk of doing business in this market in respect of ‘ensuring you get paid and enforcing contracts’.

Chart 7.4.8 Ensuring You Get Paid And Enforcing Contracts

Those perceiving a high risk in this respect are in the minority (1 in 5), however more than a quarter felt that the risk was ‘average’ in this respect rather than low. 7.4.9 Guaranteeing Quality

Firms were also asked to assess the risk in terms of ‘being able to guarantee the quality of the goods or service you provide’. Please note that those firms indicating that they had chosen the market in question because they had ‘received an approach’ but not scoring either 3, 4 or 5 out of 5 for any of the remaining four drivers of geographical focus were not asked to assess this element.

Chart 7.4.9 Being Able To Guarantee The Quality Of The Goods Or Service You Provide

Interestingly, those operating through agents or distributors hold very similar views in this respect to those selling direct, with fewer than 1 in 10 reporting a high risk in this respect. 7.4.10 Return On Investment

Firms were also asked for their views of ‘the financial risk in terms of the investment required and being able to ensure a return on that investment’. Again, those firms indicating that they had chosen the market in question because they had ‘received an approach’ but not scoring either 3, 4 or 5 out of 5 for any of the remaining four drivers of geographical focus were not asked to assess this element.

Chart 7.4.10 The Financial Risk In Terms Of The Investment Required And Being Able To Ensure A Return On That Investment

Only around 1 in 7 firms reported that this posed either a ‘fairly’ or ‘very’ high risk, with this again very similar for those selling through agents or distributors and those selling direct. 7.4.11 Ease of Staff Recruitment/Retention

Those answering with reference to overseas sites were also asked ‘how easy or difficult has it been for you to recruit and retain suitable staff’.

Chart 7.4.11 Ease of Recruiting and Retaining Suitable Staff

Although the small base sizes mean that these results should be treated as indicative only, and particularly for production sites, call centres and R&D facilities, indications are that approaching a quarter of firms establishing overseas sites find recruiting and retaining suitable staff either ‘fairly’ or ‘very’ difficult. Only around 1 in 10 find it ‘very easy’. 7.4.12 Cost of Resources

This group were also asked to indicate whether ‘in comparison with the UK, the cost of resources (and by that I mean things like wage costs and the cost of raw materials) in (this market)’ are very low, fairly low, average, fairly high or very high.

Chart 7.4.12 Cost of Resources (In Comparison With The UK)

Again, these results should be treated as indicative only, and particularly for production sites, call centres and R&D facilities, however, the indications are that low costs may well be particularly important for production sites & R&D facilities. 7.4.13 Level of Demand

The chart below shows firms’ perceptions of their chosen market in respect of ‘the potential level of demand for your products or services in (this market)’. Those firms with overseas production sites, call centres and R&D facilities not selling to customers in this market were not asked this question nor were those firms indicating that they had chosen the market in question because they had ‘received an approach’ but not scoring either 3, 4 or 5 out of 5 for any of the remaining four drivers of geographical focus.

Chart 7.4.13 The Potential Level of Demand in <Market>

Over a third of firms indicated that they saw the demand as either ‘fairly’ or ‘very’ high in this market. Interestingly approaching 1 in 5 indicated that they saw the demand as either ‘fairly’ or ‘very’ low with these firms almost exclusively opting to either sell direct or sell through agents or distributors (with two of these firms opting for JV or other partnership arrangements). 8. Drivers of Mode

8.1 Drivers of Mode (Unprompted)

Prior to being questioned on specific potential drivers of choice of mode, firms were provided with an opportunity to describe, in their own words, their reasons for choosing the mode in question rather than an alternative approach on this occasion. These responses have been coded into common themes and the most popular answers (mentioned by 3% or more of firms) are shown in the table below.

Table 8.1 Drivers of Mode (Unprompted)

| Top mentions (3%+) | Total | Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |--------------------|-------|------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | They approached us | 27% | 33% | 12% | 5% | 0% | 22% | 0% | 0% | 2% | 0% | | | Cost effective/cheaper | 13% | 13% | 9% | 31% | 0% | 9% | 28%| 74% | 12% | 0% | | | Specialised products/technical issues | 7% | 8% | 1% | 0% | 0% | 5% | 0% | 0% | 7% | 0% | | | Already have established contacts/customers/relationships | 5% | 6% | 2% | 0% | 0% | 13% | 5% | 26% | 2% | 0% | | | Easy/convenient | 5% | 3% | 14% | 5% | 0% | 0% | 0% | 0% | 5% | 0% | | | Always done it this way | 4% | 3% | 5% | 13% | 50% | 0% | 0% | 0% | 3% | 0% | | | More control | 4% | 4% | 1% | 0% | 0% | 0% | 14%| 0% | 10% | 49% | | | Agents/distributors have greater knowledge of market/established client base | 3% | 0% | 20% | 5% | 0% | 0% | 0% | 0% | 0% | 0% | | | Prefer to deal personal/one-to-one level | 3% | 4% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 3% | 0% | | Small business/low level of business | 3% | 2% | 7% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | Language/cultural issues | 3% | 1% | 10% | 18% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | | Nature of business opportunity/no choice | 3% | 2% | 3% | 13% | 50% | 0% | 14%| 0% | 10% | 13% | | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All answering about... (Base, Don't know) – Selling direct (681, 2%), Agents/distributors (146, 1%), Licensing (12, 0%), Franchising (2, 0%), JVs/partnerships (13, 5%), Production site (9, 19%), Call centre (2, 0%), Sales site (29, 7%), R&D facility (6, 13%)

This suggests that firms often sell direct because they receive approaches from potential overseas customers (with this also happening in some cases with those choosing to operate through third parties). The cost element is also clearly an important aspect of choice of mode that applies across all approaches.

Amongst those selling through agents or distributors, the knowledge and connections that the overseas partner can offer is the most popular spontaneous reason given for choosing to approach a market in this way, with the ease/convenience of such an arrangement also important. A selection of the comments made by individual firms is provided below.

“It keeps the price down not having to pay an agent and you also keep a direct relationship with customers” – Selling direct

“This is the method we always use and it is the most cost efficient method too” – Selling direct

“There’s a greater margin for me as I have no middle man.” – Selling direct

“The main reason was the customer approached us directly” – Selling direct

“Because they are the ones who approach us” – Agents/distributors

“Essentially we are developing our business and we do not have the resources in terms of manpower to cover the countries in other ways” – Agents/distributors

“It’s the easiest and cheapest way” – Agents/distributors

“To keep costs low and risks down” – Agents/distributors 8.2 Drivers of Mode (Summary)

In order to determine the drivers of mode, a series of 19 hypotheses were generated during initial design phases of the study, with these hypotheses describing the various potential drivers of choice of mode identified in the initial design phase. For each individual mode, between 7 and 11 of the full 19 hypotheses are relevant, with wording of the survey questions used to address each relevant objective tailored to the individual mode.

For example, one of the hypotheses identified has been labelled ‘customers’ and deals with firms choosing to operate their own sales site or establish a partnerships because their customers require them to have a local presence and firms choosing to set up a production/call centre/R&D facility because their customers require it. This hypothesis was identified as being relevant to all modes except selling direct, with those firms selling through agents or distributors, involved in contractual arrangements or their own overseas sales site asked the extent to which ‘our customers in (this market) require a local presence’. Those firms with their own production sites, call centres or R&D facilities were asked the extent to which ‘our customers require us to have a local production facility/presence/R&D site’.

Firms answered on a 5-point scale, where 5 means the statement is completely applicable and 1 means that it does not apply at all. The tables below show, for each individual mode, the hypotheses measured, the question text used and the proportion scoring 4 or 5 on the 5-point scale for each hypothesis (details of the full distributions of scores are shown later in this Chapter). Also shown is the proportion of firms classified as ‘solely reactive’ (as described in Chapter 7) and those not scoring against any of the 19 hypotheses (labelled ‘none’).

Table 8.2.1 Drivers Of Mode – Selling Direct

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Meeting needs’ – it was the best way to build up strong working relationships with our overseas customers | 73% | | ‘ROI/Risk’ – we didn’t want to reduce our profit margins by paying a ‘middle man’ | 44% | | ‘Level of demand’ – it was the best approach given the level of demand in <market> | 53% | | ‘IP’ – it was the best way to protect our intellectual property | 29% | | ‘Quality’ – it was the best way to ensure quality or customer service | 66% | | ‘Habit’ – we always approach overseas markets by selling direct to customers | 44% | | ‘Advice’ – we were advised to approach <market> by selling direct to customers | 18% | | Solely reactive | 18% | | None | 13% | | Total | 100% |

Base: All answering about… (Base) – Selling direct (681)

For firms electing to sell direct, 7 of the 19 hypotheses are relevant. This group appear to be most likely to be driven by customer-centred considerations, i.e. meeting customer needs through the building up of strong working relationships and ensuring quality or customer service. Approaching 1 in 5 firms choosing to sell direct are classified as ‘solely reactive’ and account for most of those labelled as having ‘none’ of the drivers.

The table below shows drivers of mode for those choosing to sell through agents or distributors.

Table 8.2.2 Drivers Of Mode – Agents/Distributors

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Customers’ – our customers in >market> require a local presence | 49% | | ‘ROI/Risk’ – it reduced the financial risk of doing business in <market> | 51% | | ‘Level of demand’ – it was the best approach given the level of demand in <market> | 64% | | ‘Finding Buyers’ – our overseas partner was better placed than we were to identify potential customers in <market> | 73% | | ‘Human resources (Capabilities)’ – it was the best way to access people who understand the market in <market> | 66% | | ‘Language & culture’ – it was the easiest way for us to cope with the practicalities of the language/culture in <market> | 53% | | ‘Business framework (Capabilities)’ – it was the easiest way for us to cope with the practicalities of doing business in <market> in terms of regulations, transport, logistics, getting paid etc. | 64% | | ‘IP’ – it was the best way to protect our intellectual property | 20% | | ‘Habit’ – we always approach overseas markets in this way | 40% | | ‘Advice’ – we were advised to approach <market> in this way | 30% | | Solely reactive | 9% | | None | 11% | | Total | 100% |

Base: All answering about… (Base) – Agents/distributors (146)

For this group the abilities of the agent/distributor are key, with the abilities of the partner to find buyers, their understanding of the market & their ability to cope with framework issues (as well as the language & culture) the most popular of the hypotheses. Having a need for a local presence appears to be less important, but still around half of those choosing to operate via this mode feel that it is applicable. In comparison with those selling direct, fewer firms are classified as ‘solely reactive’. The table below shows the drivers of mode for those choosing to pursue licensing, franchising or other partnership/JV arrangements.

Table 8.2.3 Drivers Of Mode – Contractual Arrangements

| % scoring 4 or 5 | Licensing | Franchising | JV's | |------------------|-----------|-------------|------| | 'Customers' – our customers in >market< require a local presence | 50% | 100% | 60% | | 'ROI/Risk' – it reduced the financial risk of doing business in <market> | 82% | 0% | 35% | | 'Level of demand' – it was the best approach given the level of demand in <market> | 42% | 0% | 43% | | 'Finding Buyers' – our overseas partner was better placed than we were to identify potential customers in <market> | 60% | 50% | 65% | | 'Human resources (Capabilities)' – it was the best way to access people who understand the market in <market> | 60% | 50% | 55% | | 'Language & culture' – it was the easiest way for us to cope with the practicalities of the language/culture in <market> | 60% | 100% | 43% | | 'Business framework (Capabilities)' – it was the easiest way for us to cope with the practicalities of doing business in <market> in terms of regulations, transport, logistics, getting paid etc. | 73% | 0% | 60% | | 'IP' – it was the best way to protect our intellectual property | 41% | 50% | 5% | | 'Quality' – it was the best way to ensure quality or customer service | X | 0% | X | | 'Habit' – we always approach overseas markets in this way | 41% | 0% | 22% | | 'Advice' – we were advised to approach <market> in this way | 10% | 50% | 43% | | Solely reactive | 18% | 0% | 14% | | None | 0% | 0% | 31% | | Total | 100% | 100% | 100% |

Base: All answering about… (Base) – Licensing (12), Franchising (2), JV’s (13)

Although the base sizes are too small to draw robust conclusions on the drivers of these less popular modes, risk appears to be an important consideration for licensing certainly, as well as ability of the partner firm. The table below shows the drivers of mode for those with their own production site.

Table 8.2.4 Drivers Of Mode – Production Sites

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Customers’ – our customers require us to have a local production facility | 5% | | ‘Meeting needs’ – it was the best way to build up strong working relationships with customers in <market> | 19% | | ‘Meeting needs’ – it enabled us to offer quicker response times or reduced shipment costs | 19% | | ‘Level of demand’ – it was the best approach given the level of demand in <market> | 5% | | ‘Cost of resources’ – it enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials | 33% | | ‘Business framework (ROI, Cost & Risk)’ – it enabled us to overcome import restrictions, avoid import duties or gain other tax advantages | 14% | | ‘Human resources (Location)’ – it was the best way to access people with the specialist knowledge and skills we required | 0% | | ‘Competitors’ – our competitors have production sites in <market>, so we decided to do the same | 0% | | Solely reactive | 0% | | None | 47% | | Total | 100% |

Base: All answering about… (Base) – Production sites (9)

As this data is based on just 9 firms base sizes are certainly too small to draw robust conclusions, however amongst these 9 firms at least, access to cheaper resources appears to be important.

The table below shows the drivers of mode for those with an overseas call centre.

Table 8.2.5 Drivers Of Mode – Call Centres

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Customers’ – our customers require us to have a local presence | 0% | | ‘Meeting needs’ – it enabled us to offer quicker response times | 26% | | ‘Level of demand’ – it was the best approach given the level of demand in <market> | 0% | | ‘Cost of resources’ – it enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials | 26% | | ‘Business framework (ROI, Cost & Risk)’ – it provides tax advantages | 0% | | ‘Human resources (Location)’ – it was the best way to access people with the specialist knowledge and skills we required | 100% | | ‘Competitors’ – our competitors have call centres in <market>, so we decided to do the same | 0% | | Solely reactive | 0% | | None | 0% | | Total | 100% |

Base: All answering about… (Base) – Call centres (2)

In this case, the data is based on just 2 firms and base sizes are definitely too small to draw any real conclusions. The table below shows drivers of mode for those operating their own overseas sales sites.

Table 8.2.6 Drivers Of Mode – Sales/Service Sites

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Customers’ – our customers in >market< require a local presence | 73% | | ‘Meeting needs’ – it was the best way to build up strong working relationships with our overseas customers | 97% | | ‘ROI/Risk’ – we didn’t want to reduce our profit margins by paying a ‘middle man’ | 56% | | ‘Level of demand’ – it was the best approach given the level of demand in <market> | 90% | | ‘Product development (ROI, Cost & Risk)’ – it enabled us to overcome import restrictions, avoid import duties or gain other tax advantages | 17% | | ‘IP’ – it was the best way to protect our intellectual property | 49% | | ‘Quality’ – it was the best way to ensure quality or customer service | 88% | | ‘Human resources (Locations)’ – it was the best way to access people with the specialist knowledge and skills we required | 66% | | ‘Habit’ – we always approach overseas markets in this way | 32% | | ‘Advice’ – we were advised to approach <market> in this way | 49% | | Solely reactive | 0% | | None | 0% | | Total | 100% |

Base: All answering about… (Base) – Sales sites (29)

As is the case for those selling direct, firms electing to establish their own overseas sales site are likely to have customer-centred reasons for doing so (meeting customer needs through the building up of strong working relationships and ensuring quality or customer service). However, in the case of those with overseas sales sites, this is coupled with a large proportion indicating it being an appropriate course of action given the level of demand (which applied to fewer firms choosing to sell direct (53%)). As expected, this group are not solely reactive. The table below shows the drivers of mode for those choosing to operate their own overseas R&D facility.

Table 8.2.7 Drivers Of Mode – R&D Facilities

| % scoring 4 or 5 | | |---------------------------------------------------------------------------------|-------| | ‘Customers’ – our customers require us to have a local R&D site | 13% | | ‘Product development (meeting needs)’ – it enabled us to speed up the research and development process | 49% | | ‘Cost of resources’ – it enabled us to access cheaper resource, such as cheaper wages or cheaper raw materials | 62% | | ‘Product development (ROI, Cost & Risk)’ – it was the best way to get the necessary product development done for our customers in <market> | 0% | | ‘Business framework (ROI, Cost & Risk)’ – it enabled us to overcome import restrictions, avoid import duties or gain other tax advantages | 13% | | ‘Human resources (Location)’ – it was the best way to access people with the specialist knowledge and skills we required | 62% | | ‘Location’ – it meant that we could be close to an important centre or expertise in our industry | 49% | | ‘Competitors’ – our competitors have R&D facilities in <market>, so we decided to do the same | 38% | | Solely reactive | 0% | | None | 13% | | Total | 100% |

Base: All answering about… (Base) – R&D sites (6)

As only 6 firms were questioned in connection with an overseas R&D facility, the small base size means that it is not possible to draw robust conclusions. However, there is some evidence to suggest that access to resources is important both in terms of access to human resources (i.e. people with the specialist knowledge and skills) and cheap resources (i.e. cheaper wages or raw materials). The table below provides an overview of the above results in a single location.

### Table 8.2.8 Drivers of Mode

| % scoring 4 or 5 | Total | Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------------------|-------|------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | 'Customers' | 49% | X | 49% | 50% | 100% | 60% | 5% | 0% | 73% | 13% | | | 'Meeting needs' | 72% | 73% | X | X | X | X | 19%| 26% | 97% | X | | | 'Product Development (Meeting Needs)' | 49% | X | X | X | X | X | X | X | 49% | | 'ROI/Risk' | 46% | 44% | 51% | 82% | 0% | 35% | X | X | 56% | X | | | 'Level of demand' | 55% | 53% | 64% | 42% | 0% | 43% | 5% | 0% | 90% | X | | 'Cost of resources' | 39% | X | X | X | X | X | 33% | 26% | X | 62% | | 'Product development (ROI, Cost & Risk)' | 0% | X | X | X | X | X | X | X | X | 0% | | 'Business framework (ROI, Cost & Risk)' | 15% | X | X | X | X | X | 14% | 0% | 17% | 13% | | 'Finding Buyers' | 72% | X | 73% | 60% | 50% | 65% | X | X | X | X | | | 'Human resources (Capabilities)' | 65% | X | 66% | 60% | 50% | 55% | X | X | X | X | | 'Language & culture' | 53% | X | 53% | 60% | 100% | 43% | X | X | X | X | | 'Business framework (Capabilities)' | 64% | X | 64% | 73% | 0% | 60% | X | X | X | X | | 'IP' | 28% | 29% | 20% | 41% | 50% | 5% | X | X | 49% | X | | | 'Quality' | 66% | 66% | X | X | 0% | X | X | X | 88% | X | | | 'Human resources (Locations)' | 49% | X | X | X | X | X | 0% | 100% | 66% | 62% | | 'Location' | 49% | X | X | X | X | X | X | X | 49% | X | | | 'Habit' | 42% | 44% | 40% | 41% | 0% | 22% | X | X | 32% | X | | | 'Competitors' | 10% | X | X | X | X | X | 0% | 0% | X | 38% | | | 'Advice' | 21% | 18% | 30% | 10% | 50% | 43% | X | X | 49% | X | | | Solely reactive | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | | None | 13% | 13% | 11% | 0% | 0% | 31% | 47%| 0% | 0% | 13% | | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6) The 19 drivers of choice of mode firms were prompted with have been summarised further as outlined below.

| Drivers Of Mode - Summary | |---------------------------| | Firms have been defined as being motivated to a significant extent by ‘meeting customer needs’ if they scored 4 or 5 on a 5-point scale for… | | • ‘Customers’ or ‘meeting needs’ or ‘product development (meeting needs)’ | | Firms have been defined as being motivated to a significant extent by ‘ROI, cost & risk’ if they scored 4 or 5 on a 5-point scale for… | | • ‘ROI/Risk’, ‘level of demand’, ‘cost of resources’, ‘product development (ROI, cost & risk)’ or ‘business framework (ROI, cost & risk)’ | | Firms have been defined as being motivated to a significant extent by ‘accessing partner capabilities & connections’ if they scored 4 or 5 on a 5-point scale for… | | • ‘Finding buyers’, ‘human resources (capabilities)’, ‘language & culture’ or ‘business framework (capabilities)’ | | Firms have been defined as being motivated to a significant extent by ‘control of IP & product/service quality’ if they scored 4 or 5 on a 5-point scale for… | | • ‘IP’ or ‘quality’ | | Firms have been defined as being motivated to a significant extent by ‘accessing locations of expertise’ if they scored 4 or 5 on a 5-point scale for… | | • ‘Human resources (locations)’ or ‘location’ | | Firms have been defined as being motivated to a significant extent by ‘non-analytical factors’ if they scored 4 or 5 on a 5-point scale for… | | • ‘Habit’, ‘competitors’ or ‘advice’ | | Firms have been defined as being ‘solely reactive’ if… | | • They score 4 or 5 for ‘received an approach from someone in the market’ | | • But did not score 3, 4 or 5 for having connections, considering a number of markets or internal identification of an opportunity | The table below shows the proportions of firms scoring against each of these summary categories.

Table 8.2.9 Drivers of Mode (Summary)

| % scoring | Total | Mode | Own Site | |-----------------------------------------------|-------|------|----------| | | | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | 'Meeting customer needs' | 68% | 73% | 49% | 50% | 100% | 60% | 19% | 26% | 97% | 62% | | 'ROI, cost & risk' | 68% | 66% | 73% | 87% | 0% | 60% | 53% | 26% | 95% | 62% | | 'Accessing partner capabilities & connections' | 84% | X | 85% | 87% | 100% | 69% | X | X | X | X | | 'Control of IP & product/service quality' | 58% | 67% | 20% | 41% | 50% | 5% | X | X | 90% | X | | 'Accessing locations of expertise' | 50% | X | X | X | X | 0% | 100% | 66% | 74% | | | 'Non-analytical factors' | 50% | 50% | 55% | 51% | 50% | 47% | 0% | 0% | 56% | 38% | | 'Solely reactive' | 15% | 18% | 9% | 18% | 0% | 14% | 0% | 0% | 0% | 0% | | None | 13% | 13% | 11% | 0% | 0% | 31% | 47% | 0% | 0% | 13% | | Total | 100% | 100% | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100%|

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

For those firms that have chosen to sell direct, the importance of ‘meeting customer needs’ is highlighted, alongside maintaining control of IP and product/service quality. For those electing to sell via agents or distributors, the capabilities and connections of the partner firm are highlighted as strong drivers of this choice. For those opting to enter into contractual arrangements the small base sizes make it difficult to draw robust conclusions, but the capabilities of the partner firm again appear to be important. Those operating their own overseas sales sites appear to be driven by similar considerations to those selling direct, namely ‘meeting customer needs’ as well as maintaining control of IP and product/service quality.

Across all modes, ‘ROI, cost & risk’ is highlighted as an important driver of choice of mode, a category that essentially addresses the issue of profitability and firms making money. The table below provides analysis of the above drivers of mode by age of firm, both at the total level and within mode. Please note that contractual arrangements (i.e. licensing, franchising and other partnerships/JVs) have been grouped for this analysis, as have the various types of overseas sites, but base sizes are still very small and results should be treated as indicative only.

Table 8.2.10 Drivers of Mode – By Age Of Firm (And Mode)

| % scoring | Total | Mode/Age | Direct | Agents/Distributors | |----------------------------------|-------|----------|--------|---------------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | 'Meeting customer needs' | 63% | 69% | 69% | 67% | 71% | 75% | 45% | 48% | 50% | | 'ROI, cost & risk' | 63% | 70% | 68% | 62% | 67% | 66% | 67% | 76% | 74% | | 'Accessing partner capabilities & connections' | 77% | 82% | 86% | X | X | X | 81% | 79% | 87% | | 'Control of IP & product/service quality' | 56% | 59% | 59% | 62% | 67% | 69% | 26% | 12% | 21% | | 'Accessing locations of expertise' | 56% | 63% | 43% | X | X | X | X | X | X | | 'Non-analytical factors' | 46% | 55% | 50% | 46% | 56% | 50% | 43% | 48% | 60% | | 'Solely reactive' | 13% | 17% | 16% | 14% | 20% | 19% | 10% | 10% | 8% | | None | 15% | 12% | 12% | 15% | 12% | 12% | 14% | 14% | 10% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Contractual Arrangements | Overseas site | |----------------------------------|--------------------------|---------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | 'Meeting customer needs' | 50% | 57% | 60% | 69% | 94% | 57% | | 'ROI, cost & risk' | 40% | 71% | 80% | 75% | 88% | 71% | | 'Accessing partner capabilities & connections' | 60% | 100% | 80% | X | X | X | | 'Control of IP & product/service quality' | 20% | 43% | 20% | 100% | 92% | 83% | | 'Accessing locations of expertise' | X | X | X | 56% | 63% | 43% | | 'Non-analytical factors' | 50% | 43% | 50% | 44% | 63% | 21% | | 'Solely reactive' | 30% | 14% | 10% | 0% | 0% | 0% | | None | 40% | 0% | 10% | 6% | 6% | 21% | | Total | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Up to 5 (283), 6-10 (286), More than 10 (331), Selling direct: Up to 5 (215), 6-10 (221), More than 10 (245), Agents/distributors: Up to 5 (42), 6-10 (42), More than 10 (62), Contractual arrangements: Up to 5 (10), 6-10 (7), More than 10 (10), Overseas site: Up to 5 (16), 6-10 (16), More than 10 (14)

Interestingly, the pattern in terms of drivers of mode is very similar for firms within each of the three age groups. The table below provides an analysis of the drivers of mode by business size (as measured by number of employees).

Table 8.2.11 Drivers of Mode – By Size of Firm (And Mode)

| % scoring | Total | Mode/Size (Number of Employees) | |----------------------------------|-------|---------------------------------| | | | Direct | Agents/Distributors | | | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | | 'Meeting customer needs' | 64% | 68% | 82% | 68% | 75% | 86% | 48% | 48% | 71% | | 'ROI, cost & risk' | 65% | 69% | 80% | 62% | 68% | 79% | 79% | 67% | 79% | | 'Accessing partner capabilities & connections' | 85% | 81% | 95% | X | X | X | 88% | 82% | 91% | | 'Control of IP & product/service quality' | 54% | 60% | 67% | 60% | 74% | 79% | 27% | 16% | 9% | | 'Accessing locations of expertise' | 52% | 50% | 47% | X | X | X | X | X | X | | 'Non-analytical factors' | 49% | 50% | 59% | 49% | 50% | 59% | 56% | 50% | 79% | | 'Solely reactive' | 19% | 14% | 8% | 21% | 17% | 7% | 12% | 6% | 4% | | None | 15% | 12% | 10% | 14% | 12% | 11% | 16% | 8% | 10% | | Total | 100% | 100% | 100%| 100%| 100% | 100%| 100%| 100% | 100%|

| % scoring | Total | Mode/Size (Number of Employees) | |----------------------------------|-------|---------------------------------| | | | Contractual Arrangements | Overseas site | | | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | | 'Meeting customer needs' | 57% | 41% | 75% | 61% | 69% | 79% | | 'ROI, cost & risk' | 43% | 77% | 87% | 73% | 78% | 79% | | 'Accessing partner capabilities & connections' | 57% | 77% | 100% | X | X | X | | 'Control of IP & product/service quality' | 7% | 30% | 32% | 100%| 72% | 100%| | 'Accessing locations of expertise’ | X | X | X | 52% | 50% | 47% | | 'Non-analytical factors' | 43% | 47% | 57% | 37% | 37% | 31% | | 'Solely reactive' | 22% | 0% | 25% | 0% | 0% | 0% | | None | 22% | 23% | 0% | 21% | 0% | 21% | | Total | 100% | 100% | 100%| 100%| 100% | 100%|

Base: All answering about... (Base) – Total: 0-9 (502), 10-49 (300), 50+ (91), Selling direct: 0-9 (393), 10-49 (218), 50+ (64), Agents/distributors: 0-9 (76), 10-49 (57), 50+ (12), Contractual arrangements: 0-9 (10), 10-49 (9), 50+ (8), Overseas site: 0-9 (23), 10-49 (16), 50+ (7)

Whilst smaller firms are more likely to be ‘solely reactive’ or to feel that none of the hypotheses apply strongly to them, all of the remaining drivers of mode are more likely to apply to larger firms. The table below provides an analysis of the drivers of mode by overseas business experience (measured by the number of years the firm has been involved in overseas business activity).

Table 8.2.12 Drivers of Mode – By Experience (And Mode)

| % scoring | Total | Mode/Experience (Number of Years) | Direct | Agents/Distributors | |----------------------------------|-------|----------------------------------|--------|---------------------| | | | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | | 'Meeting customer needs' | | | | | | | | | | | | | | 63% | 68% | 70% | 67% | 72% | 76% | 45% | 52% | 48% | | 'ROI, cost & risk' | | 59% | 71% | 67% | 57% | 68% | 66% | 78% | 79% | 67% | | 'Accessing partner capabilities & connections' | | 76% | 83% | 87% | X | X | X | 81% | 83% | 88% | | 'Control of IP & product/service quality' | | 56% | 58% | 60% | 62% | 65% | 72% | 24% | 21% | 19% | | 'Accessing locations of expertise' | | 58% | 55% | 38% | X | X | X | X | X | X | | 'Non-analytical factors' | | 35% | 53% | 53% | 34% | 52% | 56% | 38% | 60% | 55% | | 'Solely reactive' | | 16% | 17% | 14% | 19% | 19% | 16% | 6% | 8% | 10% | | None | | 18% | 12% | 12% | 18% | 12% | 11% | 16% | 12% | 10% | | Total | | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Total | Mode/Experience (Number of Years) | Contractual Arrangements | Overseas site | |----------------------------------|-------|----------------------------------|--------------------------|---------------| | | | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | | 'Meeting customer needs' | | 20% | 63% | 60% | 75% | 61% | 75% | | 'ROI, cost & risk' | | 20% | 74% | 80% | 58% | 82% | 75% | | 'Accessing partner capabilities & connections' | | 40% | 85% | 80% | X | X | X | | 'Control of IP & product/service quality' | | 20% | 15% | 40% | 100% | 95% | 75% | | 'Accessing locations of expertise' | | X | X | X | X | X | X | | 'Non-analytical factors' | | 0% | 74% | 20% | 42% | 40% | 25% | | 'Solely reactive' | | 40% | 18% | 0% | 0% | 0% | 0% | | None | | 60% | 4% | 20% | 8% | 10% | 25% | | Total | | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Total: Less than 2 (182), 2-10 (515), More than 10 (199), Selling direct: Less than 2 (140), 2-10 (394), More than 10 (144), Agents/distributors: Less than 2 (25), 2-10 (78), More than 10 (42), Contractual arrangements: Less than 2 (5), 2-10 (17), More than 10 (5), Overseas site: Less than 2 (12), 2-10 (26), More than 10 (8)

Focusing first on those firms selling direct, the general trend appears to be for all of the drivers of mode to become more important with experience. However, this is particularly noticeable for non-analytical factors, with the ‘habit’ hypotheses (i.e. that firms ‘always approach overseas markets in this way’) the element driving this difference (26% of firms that have been doing business overseas for less than 2 years indicated that they always do business by selling direct, compared with 47% of those who having being doing business overseas for 2-10 years and the same proportion of the ‘more than 10 years’ group.) A similar phenomenon in respect of non-analytical factors is evident for those selling through agents or distributors, with the ‘habit’ hypothesis again the element driving this difference (12% of firms that have been doing business overseas via agents or distributors for less than 2 years indicated that they always do business this way, compared with 50% of those who having being doing business overseas for 2-10 years and the 38% of the ‘more than 10 years’ group.

The table below provides an analysis of the drivers of mode by the number of markets firms are doing business in.

Table 8.2.13 Drivers of Mode – By Number of Markets (And Mode)

| % scoring | Total | Mode/Number of Markets | |------------------------------------|-------|------------------------| | | | Direct | Agents/Distributors | | | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | 'Meeting customer needs' | 65% | 71% | 70% | 69% | 76% | 76% | 39% | 54% | 52% | | 'ROI, cost & risk' | 64% | 73% | 69% | 63% | 71% | 66% | 74% | 81% | 68% | | 'Accessing partner capabilities & connections' | 71% | 92% | 88% | X | X | 75% | 92% | 86% | | 'Control of IP & product/service quality' | 60% | 59% | 54% | 65% | 71% | 68% | 29% | 19% | 17% | | 'Accessing locations of expertise' | 50% | 36% | 57% | X | X | X | X | X | | 'Non-analytical factors' | 43% | 61% | 52% | 44% | 62% | 53% | 51% | 63% | 52% | | 'Solely reactive' | 20% | 15% | 9% | 23% | 16% | 12% | 2% | 17% | 7% | | None | 15% | 12% | 10% | 14% | 12% | 11% | 16% | 8% | 10% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Mode/Number of Markets | |------------------------------------|------------------------| | | Contractual Arrangements | Overseas site | | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | 'Meeting customer needs' | 26% | 100% | 74% | 55% | 59% | 82% | | 'ROI, cost & risk' | 47% | 100% | 82% | 67% | 65% | 91% | | 'Accessing partner capabilities & connections' | 53% | 100% | 95% | X | X | X | | 'Control of IP & product/service quality' | 11% | 21% | 35% | 90% | 100% | 85% | | 'Accessing locations of expertise' | X | X | X | 50% | 36% | 57% | | 'Non-analytical factors' | 21% | 100% | 61% | 38% | 25% | 41% | | 'Solely reactive' | 26% | 21% | 5% | 0% | 0% | 0% | | None | 32% | 0% | 5% | 8% | 35% | 9% | | Total | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Up to 5 (434), 6-10 (217), More than 10 (245), Selling direct: Up to 5 (356), 6-10 (162), More than 10 (161), Agents/distributors: Up to 5 (47), 6-10 (43), More than 10 (55), Contractual arrangements: Up to 5 (11), 6-10 (3), More than 10 (13), Overseas site: Up to 5 (20), 6-10 (9), More than 10 (16)

This analysis again illustrates the point that those involved in fewer markets are more likely to be classified as ‘solely reactive’. The table below provides an analysis of the drivers of geographical focus by the various measures of innovation (including IP activity).

Table 8.2.14 Drivers of Mode – By Innovation/IP (And Mode)

| % scoring | Total | Mode/Innovation & IP | |-----------|-------|----------------------| | | Direct | IP Active | Young tech intensive | Direct | IP Active | Young tech intensive | | | Innovative | Non-innovative | IP Active | Innovative | Non-innovative | IP Active | Young tech intensive | | 'Meeting customer needs' | 67% | 68% | 68% | 72% | 65% | 71% | 72% | 73% | 75% | 68% | | 'ROI, cost & risk' | 69% | 71% | 59% | 71% | 68% | 67% | 69% | 59% | 68% | 67% | | 'Accessing partner capabilities & connections' | 89% | 88% | 58% | 93% | 80% | X | X | X | X | X | | 'Control of IP & product/service quality' | 57% | 58% | 59% | 59% | 58% | 68% | 69% | 64% | 70% | 64% | | 'Accessing locations of expertise' | 54% | 50% | 50% | 45% | 58% | X | X | X | X | X | | 'Non-analytical factors' | 50% | 52% | 45% | 46% | 49% | 49% | 53% | 46% | 47% | 49% | | 'Solely reactive' | 15% | 15% | 16% | 14% | 14% | 19% | 18% | 17% | 18% | 16% | | None | 10% | 10% | 18% | 9% | 13% | 11% | 10% | 18% | 10% | 12% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| % scoring | Mode/Innovation & IP | |-----------|----------------------| | | Agents/Distributors | Contractual Arrangements | | | Innovative | Non-innovative | IP Active | Young tech intensive | Innovative | Non-innovative | IP Active | Young tech intensive | | 'Meeting customer needs' | 53% | 52% | 32% | 59% | 51% | 67% | 62% | 21% | 74% | 50% | | 'ROI, cost & risk' | 72% | 75% | 65% | 80% | 77% | 69% | 76% | 21% | 88% | 40% | | 'Accessing partner capabilities & connections' | 90% | 88% | 63% | 93% | 86% | 83% | 86% | 21% | 92% | 60% | | 'Control of IP & product/service quality' | 23% | 22% | 10% | 20% | 31% | 26% | 24% | 21% | 33% | 20% | | 'Accessing locations of expertise' | X | X | X | X | X | X | X | X | X | X | | 'Non-analytical factors' | 50% | 58% | 36% | 48% | 51% | 60% | 52% | 21% | 48% | 50% | | 'Solely reactive' | 7% | 9% | 6% | 6% | 6% | 10% | 14% | 21% | 8% | 30% | | None | 9% | 11% | 13% | 5% | 11% | 7% | 7% | 79% | 8% | 40% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | Whilst ‘meeting customer needs’ seems to apply to innovative and non-innovative firms alike, there is some evidence to suggest that innovative firms are slightly more likely to be driven by factors relating to ‘ROI, cost & risk’ and ‘accessing partner capabilities & connections’ than non-innovative firms. This finding, alongside the finding that innovative firms are more likely than those classified as ‘non-innovative’ to perceive difficulties with their chosen market in all areas could be interpreted as implying that innovative firms face greater challenges than non-innovative firms in the implementation of a successful internationalisation strategy, specifically in respect of success in commercial terms. This could be due to a number of factors, with the relative difficulty of the task of selling innovative products/services (in comparison with more straightforward, non-technical and ‘easy to explain and sell’ products/services) as possibility as well as a lack of commercial/marketing skills on the part of innovative firms.

This is the case for innovation measured via the main ‘innovative firms’ definitions as well as through IP activity, and for young, technology intensive firms. The table below provides an analysis of the drivers of mode by usage of UKTI.

Table 8.2.15 Drivers of Mode – By Usage Of UKTI (And Mode)

| % scoring | Total | Mode/Usage of UKTI | |----------------------------------|-------|--------------------| | | User | Non-user | Direct | User | Non-user | Agents/Distrib | User | Non-user | Contractual Arrangements | User | Non-user | Overseas Site | User | Non-user | | 'Meeting customer needs' | 70% | 67% | 75% | 72% | 54% | 44% | 86% | 44% | 77% | 65% | | 'ROI, cost & risk' | 70% | 66% | 69% | 64% | 72% | 74% | 79% | 65% | 65% | 79% | | 'Accessing partner capabilities & connections' | 91% | 79% | X | X | 90% | 80% | 93% | 72% | X | X | | 'Control of IP & product/service quality' | 56% | 59% | 69% | 67% | 17% | 23% | 26% | 22% | 90% | 91% | | 'Accessing locations of expertise' | 35% | 55% | X | X | X | X | X | X | 35% | 55% | | 'Non-analytical factors' | 48% | 52% | 47% | 52% | 51% | 59% | 60% | 44% | 35% | 36% | | 'Solely reactive' | 11% | 18% | 13% | 20% | 8% | 9% | 0% | 22% | 0% | 0% | | None | 10% | 14% | 10% | 14% | 9% | 13% | 7% | 19% | 17% | 14% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about... (Base) – Total: Users (311), Non-users (589), Selling direct: Users (225), Non-users (456), Agents/distributors: Users (66), Non-users (80), Contractual arrangements: Users (9), Non-users (18), Overseas site: Users (11), Non-users (35)

As seen when looking at drivers of geographical focus, users of UKTI trade support services are less likely to be classified as ‘solely reactive’ than those who have not received assistance through UKTI. UKTI users are also slightly less likely to be motivated by ‘non-analytical’ factors, suggesting a more deliberate approach to internationalisation on the part of these firms. 8.3 Drivers of Mode (Detailed)

Below is an analysis of the full distributions of scores on the 5-point scale for each of the drivers of mode hypotheses. In each case, the actual survey questions posed to address the hypothesis in question for each individual mode is included on the right-hand side of the chart.

8.3.1 ‘Customers’ Hypothesis

The chart below shows the distribution of scores for the ‘customers’ hypothesis.

Chart 8.3.1 ‘Customers’

This hypothesis applies to all modes except selling direct and refers to customer requirements for a local presence. Amongst this group more than a third of firms felt that this was completely applicable to them (giving a score of 5 on the 5-point scale). 8.3.2 ‘Meeting Needs’ Hypothesis

The chart below shows results for the ‘meeting needs’ hypothesis. Please note that firms operating their own overseas production site were asked to rate two aspects of ‘meeting needs’ and both of these aspects are included, but as separate bars, in the chart.

Chart 8.3.2 ‘Meeting Needs’

This hypothesis applies to firms selling direct as well as those with overseas production sites, call centres or R&D facilities. Amongst this group just over half felt that this was completely applicable to them, and just 1 in 8 that it was ‘not at all applicable (i.e. giving a score of 1 on the 5-point scale). 8.3.3 ‘Product Development (Meeting Needs)’ Hypothesis

The chart below shows results for the ‘product development’ hypothesis that relates to meeting customer needs (a further ‘product development’ hypothesis relating to ROI, cost & risk is shown later in this section).

Chart 8.3.3 ‘Product Development (Meeting Needs)’

This hypothesis applies only to those firms operating their own overseas R&D facility and refers to the speeding-up of the research and development process. Since only 6 firms were questioned on this mode, these results should be treated as indicative only. 8.3.4 ‘ROI/Risk’ Hypothesis

The chart below shows results for the ‘ROI/Risk’ hypothesis.

Chart 8.3.4 ‘ROI/Risk’

This hypothesis applies to all modes except those operating overseas production sites, call centres or R&D facilities. Similar proportions of firms for whom the ‘ROI/Risk’ hypothesis applies feel that it is ‘completely applicable’ to them as feel that it is ‘not at all applicable’. 8.3.5 ‘Level of Demand’ Hypothesis

The chart below shows results for the ‘level of demand’ hypothesis.

Chart 8.3.5 ‘Level of Demand’

The hypothesis applies to all firms except those operating R&D facilities (although amongst those operating production sites or call centres, only those also selling to customers in the market in question were questioned on this topic). Around half of firms selling direct gave a score of 4 or 5 out of 5 for ‘level of demand’, with this rising to almost two-thirds amongst those selling through agents or distributors and 90% amongst those with overseas sales sites. 8.3.6 ‘Cost of Resources’ Hypothesis

The chart below shows the results for the ‘cost of resources’ hypothesis.

Chart 8.3.6 ‘Cost of Resources’

It enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials.

This hypothesis applies only to those firms operating their own overseas production sites, call centre or R&D facilities. Amongst this group similar proportions of firms feel that this hypothesis is applicable to them as feel that it does not apply (although the small base sizes must be taken into account when interpreting this result). 8.3.7 ‘Product Development (ROI, Cost & Risk)’ Hypothesis

The chart below shows results for the ‘product development’ hypothesis that relates to ROI, cost and risk.

Chart 8.3.7 ‘Product Development (ROI, Cost & Risk)’

This hypothesis applies only to those firms with their own overseas R&D facility, and then only those indicating that they had needed to modify at least some of their products or services for customers in the market in question. Only 1 of the 6 firms indicated having needed to make product modifications for these customers, with this firm giving a score of 3 out of 5 for the extent to which they felt that operating their own overseas R&D facility was ‘the best way to get the necessary product development done for our customers in (this market)’. 8.3.8 ‘Business Framework (ROI, Cost & Risk)’ Hypothesis

The chart below shows results for the ‘business framework’ hypothesis that relates to ROI, cost and risk (a further ‘business framework’ hypothesis relating to ‘capabilities’ is shown later in this section).

Chart 8.3.8 ‘Business Framework (ROI, Cost & Risk)’

This hypothesis applies only to those firms operating their own overseas sites. Amongst this group, the majority feel that this is ‘not at all applicable’ to them, giving a score of 1 out of 5. Only around 1 in 10 indicated that it was ‘completely applicable’. 8.3.9 ‘Finding Buyers’ Hypothesis

The chart below shows results for the ‘finding buyers’ hypothesis.

Chart 8.3.9 ‘Finding Buyers’

This hypothesis applies to those modes where a partner firm is involved, namely those selling through agents or distributors and those entering into some form of contractual arrangement. Amongst this group more than half of firms feel that this is completely applicable to them (giving a score of 5 on the 5-point scale). 8.3.10 ‘Human Resources (Capabilities)’ Hypothesis

The chart below shows results for the ‘human resources’ hypothesis that relates to ‘capabilities’ (a further ‘human resources’ hypothesis relating to location is shown later in this section).

Chart 8.3.10 ‘Human Resources (Capabilities)’

This hypothesis also applies to those modes where a partner firm is involved, namely those selling through agents or distributors and those entering into some form of contractual arrangement, and refers to the human resources these partner firms possess (and particularly their understanding of the market in question). Amongst this group more than two-fifths of firms feel that this is completely applicable to them (giving a score of 5 on the 5-point scale). 8.3.11 ‘Language And Culture’ Hypothesis

The chart below shows results for the ‘language and culture’ hypothesis.

Chart 8.3.11 ‘Language & Culture’

Again this hypothesis applies to those modes where a partner firm is involved, namely those selling through agents or distributors and those entering into some form of contractual arrangement, and refers to the ability of the partner firm to ‘cope with the practicalities’ of the language and culture in the market in question. Approaching two-fifths of these firms feel that this is completely applicable to them, with just 22% feeling that it is ‘not at all applicable’. 8.3.12 'Business Framework (Capabilities)' Hypothesis

The chart below shows results for the 'business framework' hypothesis that relates to 'capabilities'.

Chart 8.3.12 'Business Framework (Capabilities)'

This hypothesis also applies to those modes where a partner firm is involved, namely those selling through agents or distributors and those entering into some form of contractual arrangement, and refers to the ability of the partner firm to deal with the 'practicalities of doing business', such as 'regulations, transport, logistics, getting paid etc.' This hypothesis is also 'completely applicable' to approaching two-fifths of this group, with a further 25% of these firms giving a score of 4 out of 5. Just 16% feel that this is 'not at all applicable' to them. 8.3.13 ‘IP’ Hypothesis

The chart below shows results for the ‘IP’ hypothesis.

Chart 8.3.13 ‘IP’

This hypothesis applies to all modes except firms operating their own overseas product sites, call centres or R&D facilities. Approaching half of these firms feel that this hypothesis (which refers to protection of intellectual property) is ‘not at all applicable’ to them, and those giving a score of 5 out of 5 are in the minority. 8.3.14 ‘Quality’ Hypothesis

The chart below shows results for the ‘quality’ hypothesis.

Chart 8.3.14 ‘Quality’

This hypothesis applies to those selling direct, through their own overseas site or entering into franchising arrangements and refers to whether or not the chosen mode was the best way to ensure quality or customer service. Approaching half of these firms feel that this is ‘completely applicable’ to them, with a further 20% giving a score of 4 out of 5. Please note the small base size (2 firms) when interpreting the results for franchising. 8.3.15 ‘Human Resources (Location)’ Hypothesis

The chart below shows results for the ‘human resources’ hypothesis that relates to location.

Chart 8.3.15 ‘Human Resources (Location)’

It was the best way to access people with the specialist knowledge and skills we required.

This hypothesis applies to those firms operating their own overseas site and refers to access to people with the necessary ‘specialist knowledge and skills’. Overall, around a quarter of these firms feel that this is ‘completely applicable’ to them, rising to 44% amongst those operating via their own overseas sales site. 8.3.16 ‘Location’ Hypothesis

The chart below shows results for the ‘location’ hypothesis.

Chart 8.3.16 ‘Location’

It meant that we could be close to an important centre of expertise in our industry

This hypothesis applies only to those firms operating their own overseas R&D facility and refers to the importance of proximity to ‘an important centre of expertise’ in the industry. The small base size (6 firms) must be borne in mind when interpreting this result, with 3 of the 6 firms interviewed indicating that this was ‘completely applicable’ in their case and 2 of the 6 indicating that it was ‘not at all applicable’. 8.3.17 'Habit' Hypothesis

The chart below shows results for the 'habit' hypothesis.

Chart 8.3.17 'Habit'

This hypothesis applies to all modes except firms operating their own overseas production sites, call centres or R&D facilities and refers to the idea of firms always approaching overseas market 'in this way'. A third of these firms feel that this is completely applicable to them, but a similar proportion feel that it is 'not at all applicable'. 8.3.18 ‘Competitors’ Hypothesis

The chart below shows results for the ‘competitors’ hypothesis.

Chart 8.3.18 ‘Competitors’

This hypothesis applies only to those firms operating their own production sites, call centres or R&D facilities. Whilst the small base sizes must be borne in mind when interpreting these results, this hypothesis does not appear to be applicable in the majority of cases. 8.3.19 ‘Advice’ Hypothesis

The chart below shows results for the ‘advice’ hypothesis.

Chart 8.3.19 ‘Advice’

This hypothesis applies to all firms except those operating their own overseas production sites, call centres or R&D facilities and refers to firms being ‘advised’ to approach the market in question ‘in this way’. This hypothesis does not apply to the majority of these firms, with 60% indicating that this is ‘not at all applicable’. 9. Barriers

9.1 Barriers (Summary)

Following difficulties encountered in previous studies in measuring barriers through direct questioning techniques, a projective questioning technique was employed for this research. This technique attempts to get over issues relating to the reluctance of firms to acknowledge barriers by asking them to talk about issues that other similar firms would face. Firms were asked:

I’d now like you to think about the difficulties or problems that a firm in a similar position to yourself in terms of size, sector and structure might face doing business overseas.

I’m going to read out a list of possible issues and I’d like you to tell me the extent to which a firm similar to yourself would encounter each one when trying to do business in <market> via <mode>.

Please give me a score of 1 to 5 for the extent to which you feel that this is likely to be a difficulty, where 5 means it would be ‘extremely difficult’ and 1 means it would ‘not be a problem at all’.

Again, this line of questioning asked firms to answer in the context of the one internationalisation mode and the one market that were the focus of the sections on drivers of geographical focus and drivers of mode. This is another point of difference with previous studies.

A series of 12 potential barriers were tested with this questioning approach, with the table overleaf detailing the summarised proportions scoring 4 or 5 on the 5-point scale for each of these elements. Also shown is data from the section on drivers of geographical focus that is also pertinent to the issue of barriers. A total of 6 of the elements from this earlier section are included here, with firms indicating that their chosen market was either ‘fairly’ or ‘very’ difficult in these respects shown in the analysis. Please note that for these 6 items, data is based on firms’ own experience (but is still specific to the market and mode under discussion)

### Table 9.1.1 Barriers

| % scoring 4 or 5 | Total | Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |------------------|-------|------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Problems obtaining work permits/visas | 41% | X | X | X | X | X | 57% | 74% | 36% | 13% | | Identifying who to make contact with | 34% | 33% | 39% | 46% | 0% | 17% | 33% | 100% | 34% | 13% | | Establishing an initial dialogue | 29% | 28% | 30% | 46% | 0% | 30% | 33% | 74% | 32% | 13% | | Building relationships | 30% | 28% | 34% | 46% | 50% | 22% | 28% | 26% | 48% | 49% | | Obtaining basic information | 21% | 20% | 25% | 31% | 50% | 0% | 42% | 100% | 22% | 13% | | Costs associated with doing business | 23% | 23% | 26% | 14% | 0% | 38% | 14% | 0% | 24% | 49% | | Finding the necessary management time | 24% | 23% | 22% | 28% | 0% | 22% | 62% | 0% | 42% | 62% | | Exchange rates and currency | 28% | 27% | 34% | 13% | 50% | 5% | 47% | 0% | 30% | 13% | | Not having an office or site | 20% | 19% | 29% | 18% | 50% | 13% | X | X | X | X | | Cultural differences | 17% | 15% | 18% | 23% | 0% | 22% | 47% | 26% | 25% | 36% | | A bias for dealing with domestic firms | 21% | 18% | 30% | 14% | 50% | 30% | X | X | 22% | X | | A bias amongst customers for UK goods | 33% | X | X | X | X | X | 28% | 26% | 49% |

**Perceptions of the Market**

| Ease of negotiating framework | 25% | 25% | 20% | 14% | 50% | 9% | 57% | 100% | 46% | 13% | | Ease of protecting Intellectual Property | 15% | 13% | 18% | 23% | 50% | 39% | 14% | 74% | 12% | 36% | | Risk of ensuring you get paid etc. | 19% | 20% | 18% | 18% | 0% | 17% | 14% | 0% | 12% | 13% | | Ease of logistics of doing business | 26% | 25% | 29% | 18% | 0% | 26% | 28% | 74% | 34% | 13% | | Ease of recruiting & retaining staff | 22% | X | X | X | X | X | 28% | 0% | 20% | 25% | | Ease of negotiating lang/culture | 16% | 16% | 18% | 18% | 50% | 9% | 28% | 74% | 17% | 36% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

This analysis highlights issues relating to both identifying and building relationships with contacts as being amongst the most commonly perceived barriers, with exchange rates and currency also clearly an issue. Please note that not all of the barriers tested are relevant for all internationalisation modes. An example of this is ‘problems obtaining work permits or visas for staff to allow them to relocate to (this market)’. This issue is relevant only to those firms operating their own overseas sites, and the data shown at the ‘total’ level is based just on this sub-group of firms. Amongst this group this is clearly an important issue, although the small base sizes should be borne in mind when interpreting this result.

Interestingly, none of the barriers that apply to the majority of firms were seen as significant by more than a third.

Whilst firms selling direct and firms selling through agents or distributors are very similar in many respects when it comes to the barriers they face (with contacts and exchange rates and currency highlighted as the key barriers), there is some evidence to suggest that those firms opting to sell through agents or distributors are more likely to report issues with a bias for dealing with domestic firms than those simply selling direct. The 12 individual barriers and 6 market perception elements firms were prompted with have been summarised further as outlined below.

| Barriers - Summary | |--------------------| | Firms have been defined as perceiving significant ‘legal & regulatory’ barriers if they scored 4 or 5 on a 5-point scale for… | | • Problems obtaining work permits or visas for staff to allow them to relocate to <market> (projected) | | • Or, Difficulty negotiating the legal and regulatory framework or standards in <market> (own experience) | | • Or, Difficulty protecting Intellectual Property (own experience) | | • Or, Difficulty ensuring you get paid and enforcing contracts (own experience) |

| Firms have been defined as perceiving significant ‘contacts’ barriers if they scored 4 or 5 on a 5-point scale for… | | • Identifying who to make contact with in the first instance or finding a suitable partner (projected) | | • Or, Establishing an initial dialogue with prospective customers or business partners (projected) | | • Or, Building relationships with key influencers or decision makers (projected) |

| Firms have been defined as perceiving significant ‘information’ barriers if they scored 4 or 5 on a 5-point scale for… | | • Obtaining basic information about doing business in <market> (projected) |

| Firms have been defined as perceiving significant ‘fixed costs’ barriers if they scored 4 or 5 on a 5-point scale for… | | • The costs associated with doing business in <market> (projected) | | • Or, Finding the necessary management time to devote to doing business in <market> (projected) | | • Or, Exchange rates and currency (projected) | | • Or, Not having an office or site in <market> (projected) | | • Or, Difficulty dealing with the logistics of doing business in <market> (own experience) | | • Or, Difficulty with staff recruitment and retention (own experience) |

| Firms have been defined as perceiving significant ‘language & cultural’ barriers if they scored 4 or 5 on a 5-point scale for… | | • Cultural differences outside of any language barriers (projected) | | • Or, Difficulty negotiating the culture and language in <market> (own experience) |

| Firms have been defined as perceiving significant ‘bias’ barriers if they scored 4 or 5 on a 5-point scale for… | | • A bias or preference on the part of overseas customers for dealing with domestic firms (projected) | | • Or, A bias or preference on the part of UK customers for UK goods/call centres/R&D (projected) | The table below shows the proportions of firms scoring against each of these summary categories as well as an analysis of the number of barriers mentioned (with this latter analysis not taking account of the market perceptions data, in order to provide comparability with previous research).

Table 9.1.2 Barriers (Summary)

| % scoring | Total | Mode | |-----------|-------|------| | | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | | At least one barrier 'to a significant extent' | 79% | 78% | 85% | 69% | 100% | 78% | 81% | 100% | 88% | 74% | | - Legal & regulatory barriers | 42% | 40% | 42% | 50% | 50% | 39% | 71% | 100% | 54% | 61% | | - Contacts barriers | 46% | 45% | 49% | 50% | 50% | 35% | 47% | 100% | 58% | 49% | | - Information barriers | 21% | 20% | 25% | 31% | 50% | 0% | 42% | 100% | 22% | 13% | | - Fixed costs barriers | 63% | 60% | 69% | 50% | 50% | 61% | 76% | 74% | 83% | 74% | | - Language & cultural barriers | 26% | 24% | 29% | 36% | 50% | 22% | 47% | 100% | 27% | 36% | | - Bias barriers | 21% | 18% | 30% | 14% | 50% | 30% | 28% | 26% | 22% | 49% | | No significant barriers | 21% | 22% | 15% | 31% | 0% | 22% | 19% | 0% | 12% | 26% |

Number of Barriers (excludes market perceptions)

| At least one barrier 'to a significant extent' | 72% | 70% | 79% | 69% | 100% | 74% | 67% | 100% | 88% | 74% | | - One | 18% | 18% | 22% | 5% | 50% | 26% | 0% | 0% | 10% | 0% | | - Two | 13% | 13% | 14% | 0% | 0% | 13% | 5% | 0% | 20% | 13% | | - Three | 11% | 11% | 6% | 27% | 0% | 17% | 19% | 0% | 22% | 13% | | - Four or more | 31% | 28% | 37% | 37% | 50% | 17% | 42% | 100% | 37% | 49% | | No significant barriers | 28% | 30% | 21% | 31% | 0% | 26% | 33% | 0% | 12% | 26% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6)

The overall incidence of firms encountering barriers is similar across modes, with 79% of all internationalising firms reporting at least one significant barrier. Whilst this does appear to be higher than the levels recorded in previous studies, where firms were asked directly about barriers they themselves had faced (so excluding the barriers derived from the market perceptions questions), the overall pattern of results is very similar (with 72% encountering at least one significant barrier).

As has been the case in past studies, fixed cost barriers and contacts barriers are highlighted amongst the most important, with the key point of difference between this and previous studies being that legal & regulatory barriers are highlighted as amongst the most important (with this being the case for all modes where sample sizes allow for reasonably robust analysis).

The ‘legal and regulatory’ category is mainly based on market perceptions data (rather than data specifically on barriers), covering perceptions in relation to negotiating the legal and regulatory framework or standards, intellectual property protection and contract enforcement (as well as opinions on the extent to which the obtaining of work permits or visas is a barrier in the case of firms with overseas sites). A quarter of all firms indicated that negotiating the legal and regulatory framework or standards in their chosen market has been ‘fairly’ or ‘very’ difficult, with 15% reporting difficulties in respect of intellectual property protection. Around a fifth indicated that they perceived a ‘fairly’ of ‘very’ high risk in relation to ‘getting paid and enforcing contracts’.

The table below provides an analysis of barriers by age of firm, both at the total level and within mode. Please note that contractual arrangements (i.e. licensing, franchising and other partnerships/JVs) have been grouped for this analysis, as have the various types of overseas sites, but base sizes are still very small and results should be treated as indicative only.

Table 9.1.3 Barriers – By Age Of Firm (And Mode)

| % scoring | Total | Mode/Age | |-----------|-------|----------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | At least one barrier ‘to a significant extent’ | 80% | 85% | 77% | 80% | 85% | 75% | 88% | 79% | 85% | | - Legal & regulatory barriers | 40% | 48% | 40% | 41% | 46% | 38% | 36% | 48% | 42% | | - Contacts barriers | 47% | 51% | 44% | 45% | 51% | 43% | 64% | 50% | 45% | | - Information barriers | 25% | 27% | 18% | 23% | 28% | 17% | 43% | 21% | 21% | | - Fixed costs barriers | 63% | 68% | 61% | 61% | 67% | 58% | 79% | 62% | 68% | | - Language & cultural barriers | 26% | 29% | 25% | 28% | 27% | 22% | 14% | 36% | 31% | | - Bias barriers | 20% | 22% | 21% | 18% | 20% | 18% | 33% | 24% | 31% | | No significant barriers | 20% | 15% | 23% | 20% | 15% | 25% | 12% | 21% | 15% |

Types of Barriers (includes market perceptions)

| Number of Barriers (excludes market perceptions) | Total | Mode/Age | |-----------------------------------------------|-------|----------| | At least one barrier ‘to a significant extent’ | 73% | 77% | 71% | 71% | 76% | 68% | 86% | 71% | 79% | | - One | 14% | 17% | 20% | 14% | 18% | 19% | 10% | 14% | 27% | | - Two | 14% | 9% | 13% | 14% | 9% | 13% | 14% | 10% | 15% | | - Three | 12% | 15% | 10% | 14% | 14% | 10% | 10% | 14% | 3% | | - Four or more | 33% | 36% | 28% | 29% | 36% | 26% | 52% | 33% | 34% | | No significant barriers | 27% | 23% | 29% | 29% | 24% | 32% | 14% | 29% | 21% | | % scoring | Contractual Arrangements | Overseas site | |-----------|--------------------------|---------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | Types of Barriers (includes market perceptions) | | | | | | | | At least one barrier 'to a significant extent' | 70% | 100% | 70% | 69% | 100% | 86% | | - Legal & regulatory barriers | 30% | 86% | 40% | 44% | 56% | 71% | | - Contacts barriers | 40% | 57% | 40% | 38% | 56% | 64% | | - Information barriers | 10% | 14% | 20% | 19% | 31% | 36% | | - Fixed costs barriers | 40% | 100% | 50% | 63% | 81% | 86% | | - Language & cultural barriers | 10% | 57% | 30% | 31% | 31% | 43% | | - Bias barriers | 10% | 57% | 20% | 19% | 31% | 29% | | No significant barriers | 30% | 0% | 30% | 31% | 0% | 14% | | Number of Barriers (excludes market perceptions) | | | | | | | | At least one barrier 'to a significant extent' | 60% | 100% | 70% | 69% | 100% | 79% | | - One | 30% | 29% | 10% | 6% | 19% | 0% | | - Two | 0% | 0% | 10% | 31% | 13% | 7% | | - Three | 0% | 14% | 30% | 0% | 31% | 21% | | - Four or more | 30% | 57% | 20% | 31% | 38% | 50% | | No significant barriers | 40% | 0% | 30% | 31% | 0% | 21% |

Base: All answering about... (Base) – Total: Up to 5 (283), 6-10 (286), More than 10 (331), Selling direct: Up to 5 (215), 6-10 (221), More than 10 (245), Agents/distributors: Up to 5 (42), 6-10 (42), More than 10 (62), Contractual arrangements: Up to 5 (10), 6-10 (7), More than 10 (10), Overseas site: Up to 5 (16), 6-10 (16), More than 10 (14)

Whilst it appears to be the case that older firms are slightly less likely to report barriers at all, the pattern is similar across the three age groups (with ‘fixed costs’, ‘contacts’ and ‘legal and regulatory’ barriers the most prevalent). The table below provides an analysis of barriers by business size (as measured by number of employees).

### Table 9.1.4 Barriers – By Size Of Firm (And Mode)

| % scoring | Total | Mode/Size (Number of Employees) | Direct | Agents/Distributors | |-----------|-------|---------------------------------|--------|---------------------| | | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | | At least one barrier 'to a significant extent' | 81% | 77% | 80% | 80% | 74% | 79% | 84% | 85% | 83% | | - Legal & regulatory barriers | 40% | 41% | 53% | 39% | 38% | 50% | 37% | 47% | 46% | | - Contacts barriers | 50% | 41% | 45% | 48% | 41% | 41% | 53% | 43% | 50% | | - Information barriers | 21% | 21% | 27% | 21% | 19% | 23% | 20% | 28% | 38% | | - Fixed costs barriers | 61% | 62% | 68% | 60% | 58% | 64% | 64% | 74% | 79% | | - Language & cultural barriers | 25% | 25% | 34% | 24% | 23% | 28% | 23% | 32% | 46% | | - Bias barriers | 20% | 20% | 27% | 18% | 17% | 22% | 25% | 33% | 46% | | No significant barriers | 19% | 23% | 20% | 20% | 26% | 21% | 16% | 15% | 17% |

### Number of Barriers (excludes market perceptions)

| % scoring | Total | Mode/Size (Number of Employees) | Contractual Arrangements | Overseas site | |-----------|-------|---------------------------------|--------------------------|---------------| | | 0-9 | 10-49 | 50+ | 0-9 | 10-49 | 50+ | | At least one barrier 'to a significant extent' | 74% | 70% | 73% | 73% | 67% | 69% | 78% | 78% | 83% | | - One | 18% | 18% | 15% | 19% | 16% | 19% | 19% | 27% | 12% | | - Two | 13% | 13% | 11% | 12% | 14% | 10% | 15% | 11% | 21% | | - Three | 12% | 9% | 13% | 12% | 9% | 10% | 6% | 3% | 17% | | - Four or more | 31% | 29% | 34% | 29% | 28% | 30% | 38% | 37% | 33% | | No significant barriers | 26% | 30% | 27% | 27% | 33% | 31% | 22% | 22% | 17% |

Base: All answering about... (Base) – Total: 0-9 (502), 10-49 (300), 50+ (91), Selling direct: 0-9 (393), 10-49 (218), 50+ (64), Agents/distributors: 0-9 (76), 10-49 (57), 50+ (12), Contractual arrangements: 0-9 (10), 10-49 (9), 50+ (8), Overseas site: 0-9 (23), 10-49 (16), 50+ (7) Whilst the general trend is the same across the three age groups (with ‘fixed costs’, ‘contacts’ and ‘legal and regulatory’ barriers highlighted as the most prevalent) there is evidence to suggest higher reporting of legal and regulatory barriers amongst larger firms (with 50 or more employees). In particular, these larger firms are more likely to feel that it has been difficult for them to negotiate ‘the legal and regulatory framework or standards in (this market)’ (with levels of reporting of difficulties with protection of intellectual property and ‘ensuring you get paid and enforcing contracts’ similar to smaller firms).

The table below provides an analysis of barriers by emerging/fast growing markets and ‘others’. Please note that small base sizes restrict robust analysis by individual markets.10

Table 9.1.5 Barriers – By Market (And Mode)

| % scoring | Total | Mode/Market | |-----------|-------|-------------| | | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | | Types of Barriers (includes market perceptions) | | | | | | | | | | | | At least one barrier ‘to a significant extent’ | 81% | 78% | 79% | 77% | 89% | 83% | 78% | 73% | 85% | 85% | | - Legal & regulatory barriers | 52% | 37% | 52% | 36% | 45% | 41% | 66% | 32% | 69% | 56% | | - Contacts barriers | 50% | 45% | 50% | 43% | 54% | 47% | 22% | 55% | 54% | 58% | | - Information barriers | 25% | 20% | 23% | 19% | 31% | 22% | 16% | 17% | 36% | 27% | | - Fixed costs barriers | 66% | 61% | 66% | 58% | 63% | 71% | 62% | 52% | 78% | 80% | | - Language & cultural barriers | 37% | 21% | 36% | 20% | 34% | 27% | 44% | 21% | 48% | 29% | | - Bias barriers | 22% | 20% | 19% | 18% | 30% | 30% | 33% | 18% | 33% | 22% | | No significant barriers | 19% | 22% | 21% | 23% | 11% | 17% | 22% | 27% | 15% | 15% |

Number of Barriers (excludes market perceptions)

| % scoring | Total | Mode/Market | |-----------|-------|-------------| | | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | Fast growing | Other | | At least one barrier ‘to a significant extent’ | 74% | 72% | 72% | 70% | 80% | 78% | 72% | 73% | 76% | 85% | | - One | 18% | 18% | 17% | 18% | 22% | 22% | 34% | 7% | 3% | 8% | | - Two | 11% | 13% | 10% | 14% | 15% | 13% | 0% | 10% | 13% | 15% | | - Three | 8% | 12% | 8% | 13% | 3% | 7% | 16% | 24% | 15% | 22% | | - Four or more | 37% | 28% | 37% | 25% | 40% | 35% | 22% | 32% | 45% | 41% | | No significant barriers | 26% | 28% | 28% | 30% | 20% | 22% | 28% | 27% | 24% | 15% |

Base: All answering about… (Base) – Total: Fast growing (253), Other (647), Selling direct: Fast growing (184), Other (497), Agents/distributors: Fast growing (40), Other (106), Contractual arrangements: Fast growing (10), Other (17), Overseas site: Fast growing (19), Other (27)

Firms answering in relation to a fast growing market were more likely to report both ‘legal and regulatory’ and ‘language and cultural’ barriers than those focussing on other markets. In the case of the language and cultural barriers, those answering in relation to fast growing markets were more likely to report both ‘cultural differences outside of language barriers’ and that it had been difficult for them ‘to negotiate the culture and language in (this market)’.

In the case of the legal and regulatory barriers, firms answering in relation to fast growing markets were more likely to report having had difficulties with both

______________________________________________________________________

10 Annex A contains details of numbers of interviews conducted for individual markets. 'negotiating the legal and regulatory framework and standards (in this market)' and protecting Intellectual Property.

The table below provides an analysis of barriers by experience (measured by the length of time firms have been involved in overseas business activity).

Table 9.1.6 Barriers – By Experience (And Mode)

| % scoring | Total | Mode/Experience (Number of Years) | |-----------|-------|----------------------------------| | | | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | | At least one barrier 'to a significant extent' | 77% | 79% | 80% | 76% | 78% | 78% | 88% | 84% | 86% | | - Legal & regulatory barriers | 40% | 41% | 43% | 42% | 40% | 39% | 28% | 37% | 50% | | - Contacts barriers | 39% | 48% | 47% | 41% | 45% | 47% | 34% | 58% | 45% | | - Information barriers | 24% | 22% | 19% | 25% | 20% | 19% | 25% | 34% | 17% | | - Fixed costs barriers | 63% | 60% | 66% | 60% | 59% | 63% | 81% | 65% | 69% | | - Language & cultural barriers | 23% | 27% | 26% | 24% | 26% | 22% | 12% | 29% | 33% | | - Bias barriers | 17% | 22% | 21% | 18% | 20% | 17% | 12% | 32% | 33% | | No significant barriers | 23% | 21% | 20% | 24% | 22% | 22% | 12% | 16% | 14% |

Types of Barriers (includes market perceptions)

| At least one barrier 'to a significant extent' | 69% | 73% | 73% | 66% | 71% | 71% | 81% | 79% | 79% | | - One | 18% | 18% | 19% | 14% | 18% | 19% | 41% | 15% | 24% | | - Two | 12% | 12% | 14% | 11% | 12% | 13% | 9% | 14% | 14% | | - Three | 9% | 13% | 9% | 10% | 14% | 8% | 6% | 7% | 5% | | - Four or more | 30% | 30% | 31% | 31% | 27% | 30% | 25% | 42% | 36% | | No significant barriers | 31% | 27% | 27% | 34% | 29% | 29% | 19% | 21% | 21% |

Number of Barriers (excludes market perceptions) | % scoring | Mode/Experience (Number of Years) | Contractual Arrangements | Overseas site | |-----------|----------------------------------|--------------------------|---------------| | | Less than 2 | 2-10 | More than 10 | Less than 2 | 2-10 | More than 10 | | Types of Barriers (includes market perceptions) | | | | | | | | At least one barrier ‘to a significant extent’ | 80% | 71% | 80% | 67% | 90% | 88% | | - Legal & regulatory barriers | 0% | 56% | 40% | 50% | 58% | 75% | | - Contacts barriers | 40% | 45% | 40% | 25% | 63% | 63% | | - Information barriers | 0% | 8% | 40% | 17% | 39% | 25% | | - Fixed costs barriers | 60% | 41% | 80% | 67% | 79% | 88% | | - Language & cultural barriers | 20% | 26% | 40% | 42% | 36% | 38% | | - Bias barriers | 20% | 37% | 0% | 17% | 24% | 38% | | No significant barriers | 20 | 29 | 20 | 33 | 10 | 12 |

| Number of Barriers (excludes market perceptions) | | | | | | | | At least one barrier ‘to a significant extent’ | 60% | 71% | 80% | 67% | 90% | 75% | | - One | 40% | 22% | 0% | 0% | 11% | 0% | | - Two | 0% | 0% | 20% | 33% | 8% | 13% | | - Three | 0% | 15% | 40% | 8% | 18% | 25% | | - Four or more | 20% | 34% | 20% | 25% | 52% | 38% | | No significant barriers | 40% | 29% | 20% | 33% | 10% | 25% |

Base: All answering about… (Base) – Total: Less than 2 (182), 2-10 (515), More than 10 (199), Selling direct: Less than 2 (140), 2-10 (394), More than 10 (144), Agents/distributors: Less than 2 (25), 2-10 (78), More than 10 (42), Contractual arrangements: Less than 2 (5), 2-10 (17), More than 10 (5), Overseas site: Less than 2 (12), 2-10 (26), More than 10 (8)

Interestingly, the barriers reported by those with less overseas experience are very similar to those reported by more experienced firms. That said, there is some evidence to suggest that ‘contacts barriers’ are less of an issue amongst the most inexperienced group. In particular, both ‘identifying who to make contact with in the first instance’ and ‘establishing an initial dialogue with prospective customers or business partners’ are less likely to be mentioned by those who have been involved in overseas business activity for less than 2 years (but opinions on ‘building relationships’ are similar). The table below provides an analysis of barriers by the number of markets firms are doing business in.

### Table 9.1.7 Barriers – By Number of Markets (And Mode)

| % scoring | Total | Mode/Number of Markets | Direct | Agents/Distributors | |-----------|-------|------------------------|--------|---------------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | At least one barrier 'to a significant extent' | 72% | 85% | 86% | 70% | 86% | 85% | 81% | 85% | 88% | | - Legal & regulatory barriers | 35% | 41% | 53% | 36% | 41% | 48% | 28% | 37% | 55% | | - Contacts barriers | 38% | 55% | 50% | 38% | 56% | 48% | 34% | 54% | 55% | | - Information barriers | 20% | 23% | 22% | 19% | 23% | 20% | 28% | 27% | 21% | | - Fixed costs barriers | 56% | 64% | 71% | 54% | 65% | 68% | 74% | 59% | 73% | | - Language & cultural barriers | 20% | 33% | 28% | 21% | 32% | 24% | 15% | 37% | 31% | | - Bias barriers | 16% | 24% | 26% | 15% | 22% | 21% | 19% | 33% | 35% | | No significant barriers | 28% | 15% | 14% | 30% | 14% | 15% | 19% | 15% | 12% |

### Number of Barriers (excludes market perceptions)

| % scoring | Contractual Arrangements | Overseas site | |-----------|--------------------------|---------------| | | Up to 5 | 6-10 | More than 10 | Up to 5 | 6-10 | More than 10 | | At least one barrier 'to a significant extent' | 68% | 100% | 75% | 84% | 59% | 100% | | - Legal & regulatory barriers | 5% | 79% | 70% | 53% | 36% | 81% | | - Contacts barriers | 47% | 79% | 31% | 53% | 30% | 72% | | - Information barriers | 0% | 21% | 30% | 36% | 12% | 34% | | - Fixed costs barriers | 47% | 58% | 62% | 75% | 59% | 93% | | - Language & cultural barriers | 0% | 58% | 48% | 41% | 18% | 43% | | - Bias barriers | 11% | 79% | 22% | 17% | 6% | 47% | | No significant barriers | 32% | 0% | 25% | 16% | 41% | 0% |

Base: All answering about... (Base) – Total: Up to 5 (434), 6-10 (217), More than 10 (245), Selling direct: Up to 5 (356), 6-10 (162), More than 10 (161), Agents/distributors: Up to 5 (47), 6-10 (43), More than 10 (55), Contractual arrangements: Up to 5 (11), 6-10 (3), More than 10 (13), Overseas site: Up to 5 (20), 6-10 (9), More than 10 (16) It appears to be the case that firms operating in more markets are more likely to report barriers (with ‘information barriers’ being the one exception to this rule). However, it should be noted that across all groups, it is ‘fixed costs barriers’, ‘contacts barriers’ and ‘legal and regulatory barriers’ that are the most prevalent.

The table below provides an analysis of barriers by the various measures of innovation (including IP activity).

Table 9.1.8 Barriers – By Innovation/IP (And Mode)

| % scoring | Total | Mode Innovation & IP | |-----------|-------|----------------------| | | Innovative (alt) | Innovative | Non-Innovative | IP Active | Young tech intensive | Innovative (alt) | Innovative | Non-Innovative | IP Active | Young tech intensive | | At least one barrier ‘to a significant extent’ | 87% | 84% | 66% | 86% | 85% | 87% | 83% | 67% | 85% | 86% | | - Legal & regulatory barriers | 48% | 45% | 32% | 50% | 44% | 46% | 44% | 33% | 50% | 46% | | - Contacts barriers | 55% | 52% | 31% | 51% | 52% | 55% | 51% | 32% | 51% | 50% | | - Information barriers | 25% | 24% | 14% | 23% | 28% | 23% | 23% | 14% | 21% | 27% | | - Fixed costs barriers | 71% | 67% | 52% | 71% | 69% | 70% | 65% | 52% | 67% | 67% | | - Language & cultural barriers | 31% | 30% | 16% | 30% | 26% | 29% | 28% | 17% | 26% | 28% | | - Bias barriers | 24% | 24% | 14% | 27% | 22% | 20% | 20% | 14% | 22% | 20% | | No significant barriers | 13% | 16% | 34% | 14% | 15% | 13% | 17% | 33% | 15% | 14% |

Number of Barriers (excludes market perceptions)

| At least one barrier ‘to a significant extent’ | 82% | 78% | 58% | 78% | 78% | 81% | 76% | 57% | 75% | 77% | | - One | 19% | 17% | 21% | 16% | 13% | 19% | 17% | 21% | 17% | 13% | | - Two | 12% | 13% | 12% | 16% | 13% | 12% | 13% | 11% | 18% | 14% | | - Three | 11% | 12% | 9% | 13% | 13% | 13% | 12% | 9% | 12% | 16% | | - Four or more | 40% | 36% | 16% | 33% | 39% | 38% | 34% | 17% | 29% | 34% | | No significant barriers | 18% | 22% | 42% | 22% | 22% | 19% | 24% | 43% | 25% | 23% | | % scoring | Mode/Innovation & IP | Contractual Arrangements | |-----------|---------------------|--------------------------| | | Agents/Distributors | | | | Innovative (alt) | Innovative | | | Non-innovative | IP Active | | | Young tech intensive| Innovative (alt) | | | Non-innovative | IP Active | | | Young tech intensive| | | Types of Barriers (includes market perceptions) | | | | At least one barrier 'to a significant extent' | 86% | 89% | 61% | 91% | 89% | 87% | 72% | 100% | 74% | 70% | | - Legal & regulatory barriers | 45% | 45% | 21% | 45% | 40% | 67% | 48% | 21% | 52% | 30% | | - Contacts barriers | 51% | 51% | 35% | 57% | 69% | 53% | 48% | 0% | 37% | 40% | | - Information barriers | 24% | 26% | 19% | 29% | 43% | 26% | 19% | 0% | 26% | 10% | | - Fixed costs barriers | 68% | 72% | 48% | 85% | 83% | 57% | 50% | 100% | 60% | 40% | | - Language & cultural barriers | 29% | 31% | 13% | 44% | 14% | 43% | 31% | 21% | 29% | 10% | | - Bias barriers | 32% | 34% | 8% | 44% | 37% | 33% | 26% | 0% | 30% | 10% | | No significant barriers | 14% | 11% | 39% | 9% | 11% | 13% | 28% | 0% | 26% | 30% | | Number of Barriers (excludes market perceptions) | | | | At least one barrier 'to a significant extent' | 81% | 82% | 61% | 86% | 86% | 87% | 72% | 79% | 70% | 60% | | - One | 21% | 22% | 26% | 17% | 9% | 24% | 17% | 21% | 19% | 30% | | - Two | 16% | 14% | 11% | 13% | 9% | 0% | 0% | 58% | 0% | 0% | | - Three | 5% | 6% | 6% | 12% | 9% | 23% | 23% | 0% | 22% | 0% | | - Four or more | 39% | 40% | 19% | 44% | 60% | 40% | 31% | 0% | 30% | 30% | | No significant barriers | 19% | 18% | 39% | 14% | 14% | 13% | 28% | 21% | 30% | 40% |

| % scoring | Mode/Innovation & IP | Overseas Site | |-----------|---------------------|---------------| | | Innovative (alt) | Innovative | | | Non-innovative | IP Active | | | Young tech intensive| | | Types of Barriers (includes market perceptions) | | | | At least one barrier 'to a significant extent' | 97% | 92% | 57% | 92% | 75% | | - Legal & regulatory barriers | 71% | 68% | 35% | 66% | 50% | | - Contacts barriers | 69% | 66% | 15% | 44% | 42% | | - Information barriers | 51% | 35% | 15% | 26% | 17% | | - Fixed costs barriers | 92% | 88% | 43% | 88% | 75% | | - Language & cultural barriers | 56% | 45% | 7% | 33% | 42% | | - Bias barriers | 41% | 32% | 7% | 37% | 25% | | No significant barriers | 3% | 8% | 43% | 8% | 25% | | Number of Barriers (excludes market perceptions) | | | | At least one barrier 'to a significant extent' | 97% | 87% | 57% | 81% | 75% | | - One | 5% | 5% | 7% | 0% | 8% | | - Two | 11% | 7% | 43% | 22% | 25% | | - Three | 13% | 21% | 7% | 15% | 0% | | - Four or more | 69% | 53% | 0% | 44% | 42% | | No significant barriers | 3% | 13% | 43% | 19% | 25% |

Base: All answering about... (Base) – Total: Innovative (alternative) (418), Innovative (659), Non-innovative (241), IP active (257), Young & innovative or IP active (210), Selling direct: Innovative (alternative) (289), Innovative (475), Non-innovative (206), IP active (188), Young & innovative or IP active (153), Agents/distributors: Innovative (alternative) (86), Innovative (124), Non-innovative (22), IP active (49), Young & innovative or IP active (35), Contractual arrangements: Innovative (alternative) (18), Innovative (24), Non-innovative (3), IP active (15), Young & innovative or IP active (10) It is also the case that innovative and IP active firms are more likely to report barriers of all types. However, it should be noted that across all groups, it is ‘fixed costs barriers’, ‘contacts barriers’ and ‘legal and regulatory barriers’ that are again the most prevalent.

The table below provides a comparison of barriers across users of UKTI services and non-user firms.

Table 9.1.9 Barriers – By Usage Of UKTI (And Mode)

| % scoring | Total | Mode/Usage of UKTI | |-----------|-------|--------------------| | | User | Non-user | User | Non-user | User | Non-user | User | Non-user | | At least one barrier ‘to a significant extent’ | 88% | 75% | 85% | 74% | 94% | 77% | 100% | 63% | 94% | 82% | | - Legal & regulatory barriers | 48% | 38% | 46% | 37% | 47% | 38% | 79% | 29% | 76% | 58% | | - Contacts barriers | 51% | 44% | 49% | 43% | 50% | 48% | 74% | 28% | 70% | 53% | | - Information barriers | 23% | 20% | 21% | 20% | 27% | 22% | 39% | 7% | 40% | 28% | | - Fixed costs barriers | 70% | 59% | 66% | 58% | 77% | 61% | 93% | 38% | 82% | 79% | | - Language & cultural barriers | 28% | 25% | 25% | 24% | 30% | 28% | 72% | 10% | 40% | 37% | | - Bias barriers | 26% | 18% | 22% | 17% | 36% | 25% | 33% | 19% | 40% | 23% | | No significant barriers | 12% | 25% | 15% | 26% | 6% | 23% | 0% | 37% | 6% | 18% |

Types of Barriers (includes market perceptions)

| Number of Barriers (excludes market perceptions) | Total | Mode/Usage of UKTI | |------------------------------------------------|-------|--------------------| | At least one barrier ‘to a significant extent’ | 81% | 68% | 77% | 67% | 90% | 69% | 100% | 59% | 94% | 77% | | - One | 20% | 17% | 18% | 18% | 27% | 18% | 14% | 19% | 18% | 2% | | - Two | 15% | 11% | 16% | 11% | 16% | 12% | 0% | 9% | 12% | 14% | | - Three | 11% | 11% | 12% | 11% | 5% | 7% | 19% | 22% | 23% | 17% | | - Four or more | 35% | 28% | 31% | 27% | 42% | 32% | 67% | 10% | 40% | 44% | | No significant barriers | 19% | 32% | 23% | 33% | 10% | 31% | 0% | 41% | 6% | 23% |

Base: All answering about… (Base) – Total: Users (311), Non-users (589), Selling direct: Users (225), Non-users (456), Agents/distributors: Users (66), Non-users (80), Contractual arrangements: Users (9), Non-users (18), Overseas site: Users (11), Non-users (35)

As has been demonstrated by previous studies, users of UKTI services tend to report more barriers than non-user firms. User firms are more likely to report ‘legal and regulatory barriers’, ‘contacts barriers’, ‘fixed costs barriers’ and ‘bias barriers’, and are far less likely than non-users to report no significant barriers (19% compared with 32% for non-users). The table below provides an analysis of barriers by whether or not firms are in foreign ownership.

### Table 9.1.10 Barriers – By Ownership (And Mode)

| % scoring | Total | Mode/Foreign Ownership | |-----------|-------|------------------------| | | | Direct | Agents/Distribs | Contractual Arrangements | Overseas Site | | | Yes | No | Yes | No | Yes | No | Yes | No | | At least one barrier ‘to a significant extent’ | 84% | 79% | 86% | 77% | 86% | 85% | 66% | 75% | 75% | 90% | | - Legal & regulatory barriers | 53% | 40% | 50% | 39% | 62% | 39% | 66% | 43% | 54% | 65% | | - Contacts barriers | 51% | 45% | 50% | 44% | 53% | 49% | 33% | 43% | 58% | 56% | | - Information barriers | 21% | 21% | 19% | 20% | 28% | 24% | 0% | 18% | 25% | 34% | | - Fixed costs barriers | 70% | 62% | 68% | 60% | 73% | 68% | 66% | 55% | 75% | 81% | | - Language & cultural barriers | 30% | 25% | 28% | 24% | 31% | 29% | 33% | 29% | 34% | 40% | | - Bias barriers | 17% | 21% | 13% | 19% | 21% | 31% | 0% | 25% | 34% | 24% | | No significant barriers | 16% | 21% | 14% | 23% | 14% | 15% | 34% | 25% | 25% | 10% |

### Types of Barriers (includes market perceptions)

| At least one barrier ‘to a significant extent’ | 68% | 73% | 68% | 70% | 76% | 79% | 66% | 73% | 63% | 90% | | - One | 19% | 18% | 20% | 18% | 30% | 21% | 33% | 16% | 0% | 8% | | - Two | 9% | 13% | 14% | 13% | 0% | 15% | 0% | 7% | 0% | 20% | | - Three | 12% | 11% | 6% | 12% | 14% | 5% | 33% | 20% | 29% | 14% | | - Four or more | 28% | 31% | 27% | 28% | 32% | 37% | 0% | 30% | 34% | 47% | | No significant barriers | 32% | 27% | 32% | 30% | 24% | 21% | 34% | 27% | 37% | 10% |

Base: All answering about… (Base) – Total: Yes (89), No (810), Selling direct: Yes (59), No (621), Agents/distributors : Yes (17), No (129), Contractual arrangements : Yes (3), No (24), Overseas site : Yes (10), No (36)

There are no statistically significant differences between firms with foreign owners and the remainder, and there is certainly no evidence to suggest that those with foreign owners are less likely to report issues in relation to aspects such as ‘contacts’ or ‘fixed costs’. 9.2 Barriers (Detailed)

9.2.1 Obtaining Work Permits/Visas

The chart below shows firms’ perceptions of their chosen market in respect of the extent to which they feel that firms in a similar position to themselves would have ‘problems obtaining work permits or visas for staff to allow them to relocate to (this market)’. Please note that only firms answering in relation to overseas sites were asked this question.

Chart 9.2.1 Problems Obtaining Work Permits Or Visas For Staff To Allow Them To Relocate

Whilst the low base sizes must be borne in mind when interpreting this result, this does appear to be something that these firms feel could well be an issue, with more than two-fifths giving a score of 4 or 5 out of 5. Just 1 in 4 felt that it was likely to be ‘no problem at all’. 9.2.2 Identifying Who To Make Contact With

Firms were also asked whether they felt that it would be difficult to ‘identify who to make contact with in the first instance’ (or find a suitable partner in the case of those operating via agents or distributors, or entering into other contractual arrangements).

Chart 9.2.2 Identifying Who To Make Contact With In the First Instance

As many as 15% of firms gave a score of 5 out of 5 to indicated that they felt that it would be ‘extremely difficult’ for firms such as themselves to identify who to make contact with and just 25% felt that it would be no problem at all (giving a score of 1 out of 5). 9.2.3 Establishing An Initial Dialogue

Firms were also asked whether they felt that it would be difficult to ‘establish an initial dialogue with prospective customers or business partners (in this market)’.

Chart 9.2.3 Establishing An Initial Dialogue with Prospective Customers Or Business Partners

Again, only around a quarter of firms gave a score of 1 out of 5 to indicated that they felt that this would be ‘no problem at all’, with 1 in 10 feeling that it would be ‘extremely difficult’ (giving a score of 5) and a further 19% giving a score of 4 out of 5. 9.2.4 Building Relationships

Firms were also asked whether they felt that it would be difficult to ‘build relationships with key influencers or decision makers’, with the following results.

Chart 9.2.4 Building Relationships With Key Influencers Or Decision-Makers

These results are very similar to those for ‘establishing an initial dialogue’, with around 1 in 10 firms feeling that it would be ‘extremely difficult’ (giving a score of 5 out of 5) and a quarter feeling that building relationships would be ‘no problem at all’ (giving a score of 1). 9.2.5 Obtaining Basic Information

The chart below shows firms' perceptions of 'obtaining basic information'.

Chart 9.2.5 Obtaining Basic Information

Only around 1 in 5 firms felt that this would be difficult (giving a score of 4 or 5 out of 5), and approaching 1 in 3 felt that it would be 'no problem at all' (giving a score of 1). This is in line with previous studies, where obtaining basic information has not been amongst the most prevalent barriers. 9.2.6 Costs Associated With Doing Business

Firms were also asked whether they felt others would have difficulty with 'the costs associated with doing business in (this market)'.

Chart 9.2.6 The Costs Associated With Doing Business In <Market>

Again, approaching 1 in 3 firms felt that this was likely to be 'no problem at all' (giving a score of 1 out of 5) with only 7% of firms indicating that it would be 'extremely difficult' (giving a score of 5). 9.2.7 Finding The Necessary Management Time

Firms were also asked to indicate whether they felt that ‘finding the necessary management time to devote to doing business in (this market)’ was likely to be an issue.

Chart 9.2.7 Finding The Necessary Management Time

Whilst approaching a quarter of firms felt that this would be a difficulty (giving a score of 4 or 5 out of 5), 28% felt that it would be ‘no problem at all’ (giving a score of 1). 9.2.8 Exchange Rates And Currency

The chart below shows firms' perceptions of 'exchange rates and currency'.

Chart 9.2.8 Exchange Rates And Currency

Whilst more than a quarter of firms felt that this would be a difficulty (giving a score of 4 or 5 out of 5), almost a third felt that it would be 'no problem at all' (giving a score of 1). There is some evidence to suggest that, in comparison with those selling direct, firms selling through agents or distributors are more likely to feel that this is a potential barrier. 9.2.9 Not Having An Office Or Site

Firms were also asked whether they felt that others would find ‘not having their own office or site in (this market)’ difficult. Of course, this question was not asked to those answering in relation to operating overseas sites.

Chart 9.2.9 Not Having A (Local) Office Or Site

Amongst these firms, only around a fifth felt that this was a difficulty (giving a score of 4 or 5 out of 5). Interestingly, this is higher amongst those selling through agents or distributors than those selling direct. 9.2.10 Cultural Differences

Firms were also asked whether they felt that others would have find ‘cultural differences outside of any language barriers’ difficult.

Chart 9.2.10 Cultural Differences Outside Of Language Barriers

Only around 1 in 6 firms felt that this would be difficult (giving a score of 4 or 5 out of 5), with well over half feeling that it would not be a problem (giving a score of 1 or 2). 9.2.11 A Bias For Dealing With Domestic Firms

The chart below shows firms’ perceptions of difficulties in respect of ‘a bias on the part of overseas customers for doing business with domestic firms’. Please note that firms operating their own production sites, call centres and R&D facilities were not asked this question.

Chart 9.2.11 A Bias On The Part Of Overseas Customers For Doing Business With Domestic Firms

Only 7% of this group felt that this would be ‘extremely difficult’ (giving a score of 5 out of 5) and a third felt that it would be ‘no problem at all (giving a score of 1). 9.2.12 A Bias Amongst Customers For UK Goods

Firms answering in relation to production sites, call centres and R&D facilities were instead asked whether they felt that others in a similar position to themselves would have difficulties with 'a bias of preference on the part of UK customers for sourcing goods produced in the UK/using call centres based in the UK/research and development being undertaken in the UK'.

Chart 9.2.12 A Bias Or Preference On The Part Of UK Customers For Goods/Services From The UK

Although the very small base size must be borne in mind when interpreting this result, opinions seem fairly divided on whether or not this is likely to be a difficulty. 9.3 Business Needs For External Help

This analysis of the barriers faced by internationalising firms suggests that the areas that firms are having most problems with are fixed costs, contacts and legal & regulatory issues.

In the case of fixed costs, similar proportions of firms feel that there are difficulties in each area, i.e. in terms of the costs associated with doing business overseas (23% giving a score of 4 or 5 out of 5), finding the necessary management time (24%), exchange rates and currency (28%) and not having an office or site (20%), implying that firms needs for external help are likely to cover all of these aspects of the fixed costs of doing business overseas.

In the case of contacts, both identifying who to make contact with in the first instance and issues relating to building relationships (i.e. establishing a dialogue with prospective customers/partners and building relationships with key decision makers) are clearly important. This implies that firms need assistance in both of these areas (and not just in terms of the provision of contacts/introductions)

In the case of legal and regulatory barriers, it is negotiating the legal and regulatory framework or standards in a particular market that are the most widespread issue, followed by problems relating to ‘getting paid and enforcing contracts’ and then Intellectual Property protection.

The analysis of barriers by UKTI usage demonstrates that these are the major issues facing both existing UKTI users and non-users alike, suggesting that needs for external help are similar across these groups.

Firms appear to be less likely to be facing problems with gaining basic information, negotiating language and cultural differences, and issues relating to biases on the part of customers for buying domestically, suggesting that there is less need for assistance in these areas (or at least any new assistance beyond that which is currently available both from UKTI and elsewhere). 10. Opportunities In Emerging & Fast Growing Markets

10.1 Opportunities In Emerging & Fast Growing Markets

Firms were asked to consider the extent to which they felt that there were opportunities for them in the UKTI priority fast growing markets(^\\text{11}). For each market in turn, firms were asked to indicate whether they saw it as being a good opportunity for them over the next 2 years, a possible opportunity, or unlikely to provide them with an opportunity over this timeframe (with those already doing business in each market also recorded).

The chart below shows firms’ opinions on opportunities in the priority fast growing markets. Please note that, of the Asian fast growing markets, only China and India were addressed individually, with the remainder covered under a single ‘other Asian markets’ category.

Chart 10.1.1 Opinions On Opportunities In Emerging & Fast Growing Markets

Opinions vary across the markets, from just 7% indicating that Mexico was a ‘good opportunity’ and 60% believing that this market was ‘unlikely’ to provide them an opportunity, to 12% feeling that India was a ‘good opportunity’ and just 38% indicating that it was unlikely to provide them an opportunity.

______________________________________________________________________

(^{11}) For the purposes of this study, emerging/fast growing markets cover the UKTI priority fast growing markets as identified in UKTI’s five year strategy published in 2006 ‘Prosperity in a Changing World’, i.e. Brazil, China, GCC countries (Saudi Arabia and UAE), India, Indonesia, Mexico, Russia, South Africa, Turkey, Malaysia, Qatar, Singapore, South Korea, Thailand and Vietnam. Results have been summarised as follows.

| Opportunities In Emerging & Fast Growing Markets - Summary | |-----------------------------------------------------------| | Firms have been defined as ‘already in’ if… | | • They are already in at least one emerging/fast growing market | | Firms have been defined as perceiving a ‘good opportunity’ if… | | • Not already in any of the emerging/fast growing markets | | • But feel that at least one is a ‘good’ opportunity | | Firms have been defined as perceiving a ‘possible opportunity’ if… | | • Not already in any of the emerging/fast growing markets | | • Feel that none of the markets are a ‘good’ opportunity | | • But feel that at least one is a ‘possible’ opportunity | | Firms have been defined as ‘unlikely’ if… | | • Not already in any of the emerging/fast growing markets | | • And feel that none of the markets are either a ‘good’ or ‘possible’ opportunity |

The table below shows the results of this summary analysis.

| Table 10.1.1 Opportunities In Emerging & Fast Growing Markets (Summary) | |-----------------------------------------------------------------------| | Total | 100% | |-------|------| | Already in | 45% | | Good opportunity | 19% | | Possible opportunity | 24% | | Unlikely | 12% | | Total | 100% |

Base: All respondents (Base, Don’t know) – Total (900, 1%)

When the data is viewed in this way, it shows that approaching half (45%) of internationalising firms are already doing business in at least one of the emerging/fast growing markets (with almost half of this group made up of small firms with less than 10 employees). The majority of the remainder see at least one market as either a good or possible opportunity. Only around 1 in 8 feel that none of these markets are likely to provide them with an opportunity. The table below shows firms’ opinions on opportunities in the UKTI priority fast growing markets by age of firm and size (measured via number of employees).

Table 10.1.2 Opportunities In Emerging & Fast Growing Markets (Summary) - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | 6-10 | 40% | 49% | 53% | 55% | 54% | | > 10 | 19% | 20% | 15% | 18% | 12% | | | 29% | 18% | 25% | 8% | 12% | | | 12% | 12% | 7% | 11% | 18% | | | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

It appears to be the case that the likelihood of a firm trading in these fast growing markets increases with both age and size, with younger and smaller firms more likely to see these markets as merely a ‘good’ or ‘possible’ opportunity (rather than already doing business there). That said, still as many as 40% of firms with less than 10 employees are already doing business in at least one of the priority fast growing markets.

The table below shows opinions by both industry sector and displacement.

Table 10.1.3 Opportunities In Emerging & Fast Growing Markets (Summary) - By Sector & Displacement

| Sector | Main Competitors (Location) | |--------|-----------------------------| | | UK | Overseas | Both | | Already in | 50% | 41% | 33% | 63% | 48% | | Good | 17% | 21% | 16% | 19% | 21% | | Possible| 21% | 26% | 31% | 13% | 23% | | Unlikely| 12% | 12% | 20% | 5% | 7% | | Total | 100%| 100%| 100%| 100%| 100%|

Base: All respondents (Base) – Sector: Production (377), Services (505) – Main Competitors: UK (369), Overseas (164), Both (337) It appears that firms in the production sector are more likely than service companies to already be doing business in these fast growing markets. There is a sharp contrast between firms who see their main competition as being domestic against those mentioning overseas competition, with the former far less likely to be doing business in the priority fast growing markets and much more likely to feel that these markets are unlikely to provide them with an opportunity.

The table below shows opinions on opportunities in the priority fast growing markets by usage of UKTI and the extent to which firms had been affected by the current economic climate at the time of the interview.

Table 10.1.4 Opportunities In Emerging & Fast Growing Markets (Summary) - By Usage of UKTI & The Economic Climate

| Usage of UKTI | Negatively Affected By Downturn? | |---------------|----------------------------------| | User | Yes | No | | Non-user | | | | Already in | 52% | 41% | 40% | 48% | | Good | 23% | 16% | 21% | 17% | | Possible | 19% | 26% | 26% | 22% | | Unlikely | 5% | 15% | 13% | 12% | | Total | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Usage of UKTI: User (311), Non-user (589) – Negatively Affected by Downturn?: Yes (371), No (509)

Users of UKTI services are more likely than non-users to be doing business in at least one of the priority fast growing markets and less likely to feel that these markets are unlikely to provide them with an opportunity. There is evidence to suggest that those firms that were not reporting having been negatively affected by the economic downturn were also slightly more likely to be doing business in these fast growing markets as opposed to just seeing them as a ‘good’ or ‘possible’ opportunity. The table below shows firms’ opinions by various measures of innovation (including IP activity).

Table 10.1.5 Opportunities In Emerging & Fast Growing Markets (Summary) – By Innovation & IP

| | Innovative? | IP Active? | |----------------|-------------|------------| | | Yes (Tighter Defn) | Yes | No | Yes | No | | Already in | 49% | 46% | 42% | 52% | 41% | | Good | 22% | 22% | 9% | 20% | 19% | | Possible | 22% | 22% | 28% | 21% | 26% | | Unlikely | 5% | 9% | 20% | 7% | 15% | | Total | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Innovation: Innovative (Alternative) (418), Innovative (659), Non-innovative (241) – IP Active: Yes (267), No (608)

Both non-innovative firms and those that are not IP active are more likely to feel that the priority fast growing markets are unlikely to offer them an opportunity and less likely to be doing business in them than ‘innovative’ and IP active firms.

The table below compares opinions on opportunities in the priority fast growing markets between born global and ‘young, technology intensive’ firms, with younger firms overall and firms that have been established for more than five years.

Table 10.1.6 Opportunities In Emerging & Fast Growing Markets (Summary) – By Young Innovative Firms/Born Globals

| Age (Years Trading) | Total | Born global | Innovative or IP active | More than 5 | |---------------------|-------|-------------|-------------------------|-------------| | | | | | | | Already in | 35% | 43% | 37% | 47% | | Good | 24% | 20% | 25% | 17% | | Possible | 30% | 27% | 28% | 22% | | Unlikely | 10% | 9% | 9% | 13% | | Total | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), Up to 5/born global (152), Up to 5/innovative or IP active (210), More than 5 (617)

Firms that were born global are more likely than younger firms overall to be already doing business in at least one of these markets. The table below shows the results by various measures of growth, including both past and future growth as well as the ASBS and OECD definitions.

Table 10.1.7 Opportunities In Emerging & Fast Growing Markets (Summary) – By Growth

| Past Growth (Employees) | Growth Objectives | |-------------------------|------------------| | Smaller | Same | Slight growth | Mod growth | Subs growth | Stay same | Mod growth | Subs growth | | Already in | 40% | 46% | 40% | 47% | 64% | 41% | 44% | 49% | | Good | 16% | 15% | 25% | 26% | 12% | 15% | 17% | 23% | | Possible | 31% | 24% | 23% | 17% | 19% | 19% | 26% | 22% | | Unlikely | 11% | 15% | 12% | 8% | 5% | 23% | 13% | 5% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

| Growth (ASBS Definition) | Growth (OECD Definition) | |--------------------------|--------------------------| | Sustained | Contained | New | No growth | High-growth | Gazelles | | Already in | 53% | 44% | 45% | 43% | 40% | 33% | | Good | 24% | 20% | 22% | 15% | 25% | 26% | | Possible | 15% | 24% | 29% | 24% | 23% | 28% | | Unlikely | 7% | 10% | 4% | 16% | 12% | 13% | | Total | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Past Growth (Employees): Become smaller (126), Remained the same (341), Grown slightly (less than 30%) (143), Grown moderately (30-74%) (105), Grown substantially (75%+) (38) – Growth Objectives: Stay the same size (105), Grow moderately (425), Grow substantially (313) – Growth (ASBS): Sustained (148), Contained (148), New (165), No growth (439) – Growth (OECD): High-growth (143), Gazelles (46)

Firms who have either seen substantial growth or are anticipating it are less likely to feel these markets are unlikely to offer them an opportunity than those exhibiting less ambitious growth and/or growth plans. Firms that have seen substantial growth (of 75%+ in employee numbers) are more likely to already be doing business in at least one of these markets than those exhibiting only modest (or no) growth. 10.2 Impact of Economic Downturn

Firms were asked whether their business had been ‘negatively affected by the apparent downturn in the US or UK markets over the last year’, and if so about whether this had prompted them to focus more on emerging or fast growing markets. Please note that fieldwork was conducted during August and early-September 2008.

Chart 10.2.1 Impact Of Economic Downturn

Overall, around two-fifths of internationalising firms mentioned that they had been affected, but less than half of this group (18% of all internationalising firms) mentioned that they were devoting more attention to emerging or fast growing markets as a consequence.

The table below shows these results analysed by age and size of firm.

Table 10.2.1 Impact Of Economic Downturn - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|-----------------------------| | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Negatively affected by downturn | 39% | 41% | 44% | 44% | 41% | 40% | 42% | 44% | | More attention to these markets | 21% | 18% | 17% | 19% | 16% | 27% | 32% | 7% | | No more attention | 18% | 22% | 26% | 25% | 25% | 13% | 11% | 32% | | Not affected by downturn | 57% | 58% | 55% | 54% | 58% | 56% | 50% | 56% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

There is no consistent pattern by either age or size of firm. The table below provides an analysis by various measures of innovation (including IP activity).

Table 10.2.2 Impact Of Economic Downturn – By Innovation & IP

| Innovative? | IP Active? | |-------------|------------| | Yes (Tighter Defn) | Yes | No | Yes | No | | Negatively affected by downturn | 47% | 47% | 31% | 44% | 42% | | More attention to these markets | 21% | 21% | 11% | 18% | 18% | | No more attention | 26% | 26% | 20% | 24% | 24% | | Not affected by downturn | 52% | 52% | 65% | 55% | 57% | | Total | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Innovation: Innovative (Alternative) (418), Innovative (659), Non-innovative (241) – IP Active: Yes (267), No (608)

There is some evidence to suggest that, perceptions at least, amongst non-innovative firms is that they are less likely to have been negatively affected by the downturn than innovative firms, however, there is no such difference evident by whether or not firms are IP active.

The table below compares opinions between born global and ‘young, technology intensive’ firms, with younger firms overall and firms that have been established for more than five years.

Table 10.2.3 Impact Of Economic Downturn – By Young Innovative Firms/Born Globals

| Age (Years Trading) | Up to 5 | More than 5 | |---------------------|---------|-------------| | Total | Born global | Innovative or IP active | | | Negatively affected by downturn | 39% | 40% | 45% | 43% | | More attention to these markets | 21% | 21% | 24% | 17% | | No more attention | 18% | 19% | 21% | 25% | | Not affected by downturn | 57% | 57% | 53% | 56% | | Total | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), Up to 5/born global (152), Up to 5/innovative or IP active (210), More than 5 (617) The table below provides an analysis by various measures of growth, including both past and future growth as well as the ASBS and OECD definitions.

Table 10.2.4 Impact of Economic Downturn – By Growth

| Growth Objectives | Stay same | Mod growth | Subs growth | |-------------------|-----------|------------|-------------| | Negatively affected by downturn | 40% | 45% | 40% | | More attention to these markets | 13% | 20% | 19% | | No more attention | 28% | 24% | 22% | | Not affected by downturn | 59% | 54% | 58% | | Total | 100% | 100% | 100% |

| Growth (ASBS Definition) | Sustained | Contained | New | No growth | |--------------------------|-----------|-----------|-----|-----------| | Negatively affected by downturn | 38% | 34% | 42% | 46% | | More attention to these markets | 14% | 17% | 23% | 18% | | No more attention | 24% | 16% | 20% | 28% | | Not affected by downturn | 61% | 63% | 56% | 52% | | Total | 100% | 100% | 100% | 100% |

| Growth (OECD Definition) | High-growth | Gazelles | |--------------------------|-------------|-----------| | Negatively affected by downturn | 37% | 50% | | More attention to these markets | 19% | 30% | | No more attention | 18% | 20% | | Not affected by downturn | 62% | 48% | | Total | 100% | 100% |

Base: All respondents (Base) – Growth Objectives: Stay the same size (105), Grow moderately (425), Grow substantially (313) - Growth (ASBS): Sustained (148), Contained (148), New (165), No growth (439) – Growth (OECD): High-growth (143), Gazelles (46)

There is no consistent pattern by growth. The table below shows these results by the number of markets firms are doing business in and usage of UKTI.

Table 10.2.5 Impact Of Economic Downturn – By Markets & Usage of UKTI

| Number of Markets | Usage of UKTI | |-------------------|---------------| | | User | Non-user | | Up to 5 | 41% | 43% | | 6-10 | 16% | 17% | | More than 10 | 24% | 26% | | | 57% | 56% | | | 100% | 100% |

Base: All respondents (Base) – Number of Markets: Up to 5 (434), 6-10 (217), More than 10 (245) – Usage of UKTI: Users (311), Non-users (589)

Non-users and users are similar in terms of the likelihood of their having been affected by the downturn, but there is some evidence to suggest that users are marginally more likely to have devoted more attention to emerging or fast growing markets as a result (which is expected given their higher propensity to be doing business in these markets at all).

The table below provides an analysis by sector.

Table 10.2.6 Impact of Economic Downturn – By Sector

| Sector (Summary) | Sector (Detailed) | |------------------|-------------------| | | D – Manufacturing | G – Retail, Wholesale | I – Transport, Storage & Comm | K – Real Estate, Renting & Bus Act | | | Produ | Serv | 45% | 44% | 31% | 37% | | | 40% | | 20% | 20% | 13% | 14% | | | 25% | 23% | 25% | 24% | 19% | 23% | | | 54% | 57% | 54% | 53% | 61% | 61% | | | 100% | 100% | 100%| 100%| 100%| 100%|

Base: All respondents (Base) – Production (377), Services (505) – D - Manufacturing (372), G – Retail, Wholesale & Repair of Motor Vehicles (151), I – Transport, Storage & Communication (33), K – Real Estate, Renting & Business Activities (268)

There is some evidence to suggest that some sectors are more likely to have been negatively affected by the downturn, namely the production and retail sectors. The table below shows these results by internationalisation mode.

### Table 10.2.6 Impact of Economic Downturn – By Mode

| % scoring | Mode | Direct | Agents / Distrib | Licensing | Franchising | JV | Production | Call centre | Sales | R&D | |----------------------------|-----------------------|--------|------------------|-----------|-------------|----|------------|-------------|-------|-----| | Negatively affected by downturn | 41% | 45% | 63% | 100% | 14% | 28% | 100% | 44% | 62% | | More attention to these markets | 15% | 26% | 31% | 100% | 5% | 14% | 0% | 27% | 62% | | No more attention | 26% | 19% | 31% | 0% | 9% | 14% | 100% | 17% | 0% | | Not affected by downturn | 57% | 53% | 37% | 0% | 82% | 67% | 0% | 56% | 38% | | Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |

Base: All answering about… (Base) – Selling direct (681), Agents/distributors (146), Licensing (12), Franchising (2), JVs/partnerships (13), Production site (9), Call centre (2), Sales site (29), R&D facility (6) 11. Awareness

Firms were asked to consider sources of information or advice that they are aware of that are available to help UK firms do business overseas, and then read out a list of UKTI products and services and asked to indicated whether or not they had heard of each one. As well as the list of 7 products and services, firms were also asked whether or not they had heard of ‘UK Trade & Investment or UKTI’ prior to the interview.

The chart below shows the results of this questioning on awareness, with the proportion of firms aware of each individual product/service who also indicated that they were aware of UKTI shown on the right-hand side.

Chart 11.1 Awareness (UKTI & UKTI Products/Services)

| Product/Service | % Aware of UKTI | |-----------------|-----------------| | UKTI | 51% | | Overseas posts | 55% | | ITAs | 59% | | Passport | 34% | | EMRS\* | 22% | | ECR\* | 13% | | TAP | 26% | | OMIS | 26% | | None of these | 20% |

Base: All respondents (Base) (900)

- Please note that firms were only asked awareness of EMRS & ECR if aware of either UKTI or the ITAs

Overall, around half (51%) of internationalising firms claimed that they had heard of UKTI, with awareness of both posts and ITAs slightly higher (at 55% and 59% respectively). Awareness of Passport was relatively high at 34%, with TAP and OMIS recognised by around a quarter of firms. Only around a fifth of internationalising firms indicated that they hadn’t heard of any of the products and services listed (or UKTI).

Around a third (35%) had used at least one of these products/services.

These results are consistent with those collected via the old awareness study, which this research has been designed to replace. The 2006 survey measured awareness of UKTI at 48% and had been showing a steady increase in awareness levels over the past few years.

It should be noted that not all firms that had heard of various UKTI products and services had heard of UKTI itself. For example only 75% of those who had heard of Passport had also heard of UKTI and only around two-thirds of those that claimed that they had heard of overseas posts or ITAs.

The table below shows these results analysed by age and size of firm.

Table 11.1 Awareness (UKTI & UKTI Products/Services) - By Size And Age

| Age (Years Trading) | Size (Number of Employees) | |---------------------|---------------------------| | | Up to 5 | 6-10 | > 10 | 0-9 | 10-49 | 50-99 | 100-249 | 250+ | | Aware (at least one) | 80% | 81% | 80% | 77% | 84% | 85% | 84% | 81% | | UKTI | 46% | 50% | 53% | 50% | 54% | 55% | 42% | 38% | | Overseas posts | 51% | 55% | 57% | 53% | 59% | 62% | 68% | 53% | | ITAs | 58% | 59% | 59% | 60% | 59% | 60% | 56% | 48% | | Passport | 35% | 35% | 33% | 31% | 36% | 47% | 32% | 28% | | EMRS | 21% | 22% | 22% | 19% | 26% | 34% | 21% | 16% | | ECR | 10% | 13% | 14% | 11% | 14% | 23% | 8% | 10% | | TAP | 23% | 25% | 28% | 23% | 30% | 40% | 26% | 16% | | OMIS | 28% | 23% | 26% | 23% | 28% | 44% | 37% | 15% | | Used (at least one) | 34% | 35% | 35% | 30% | 41% | 50% | 42% | 28% | | Total | 100% | 100% | 100% | 100%| 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Age: Up to 5 (283), 6-10 (286), More than 10 (331) – Size: 0-9 (502), 10-49 (300), 50-99 (45), 100-249 (18), 250+ (28)

Both awareness and usage levels do not vary with age of firm. There is some evidence to suggest that the smallest firms (with less than 10 employees) are perhaps slightly less likely to have heard of any of the products/services (77%) or to have used any of them (30%). The table below shows these results by the number of markets firms are doing business in and usage of UKTI.

Table 11.2 Awareness (UKTI & UKTI Products/Services) – By Markets & Usage of UKTI

| | Number of Markets | Usage of UKTI | |----------------------|-------------------|---------------| | | Up to 5 | 6-10 | More than 10 | User | Non-user | | Aware (at least one) | 74% | 85% | 86% | 100% | 70% | | UKTI | 42% | 51% | 64% | 79% | 36% | | Overseas posts | 47% | 59% | 65% | 84% | 40% | | ITAs | 54% | 67% | 61% | 84% | 46% | | Passport | 33% | 36% | 32% | 56% | 21% | | EMRS | 19% | 18% | 29% | 38% | 13% | | ECR | 13% | 10% | 15% | 23% | 7% | | TAP | 23% | 23% | 34% | 46% | 16% | | OMIS | 21% | 27% | 31% | 49% | 13% | | Used (at least one) | 29% | 39% | 40% | 100% | 0% | | Total | 100% | 100% | 100% | 100% | 100% |

Base: All respondents (Base) – Number of Markets: Up to 5 (434), 6-10 (217), More than 10 (245) – Usage of UKTI: Users (311), Non-users (589)

Both awareness and usage levels are higher amongst firms who are doing business in more than five overseas markets (although awareness of Passport specifically is quite similar).

Of course, awareness of all products/services is higher amongst users of UKTI services, but still 70% of non-users claim to be aware of at least one of the products/services named (but only just over a third are aware of UKTI (which is consistent with the results of the PIMS non-user surveys)). Most of the non-user awareness is of overseas posts & ITAs. Annex A – Individual Markets (Sample Sizes)

The table below provides an analysis of the numbers of firms answering questions on drivers of geographical focus, drivers of mode and barriers in relation to individual markets. Please note that this analysis only shows those markets that were the focus of more than 10 firms.

Table A.1 Interviews Conducted – By Market

| Market | Number of Interviews | |-------------|----------------------| | USA | 123 | | China | 59 | | France | 53 | | Ireland | 47 | | Germany | 43 | | India | 40 | | Spain | 36 | | Russia | 33 | | Holland | 28 | | Nigeria | 28 | | UAE | 27 | | Poland | 22 | | Japan | 21 | | Australia | 19 | | Italy | 18 | | South Africa| 17 | | Canada | 12 | | Saudi Arabia| 12 | | Turkey | 11 | Annex B – Questionnaire

OMB RESEARCH LIMITED UKTI – International Business Strategies, Barriers & Awareness Survey Questionnaire July/August 2008

TARGET QUOTAS:

- 300 interviews with firms 0-5 years old
- 300 interviews with firms 6-10 years old
- 300 interviews with firms more than 10 years old

SCREENER

ASK ALL Could I please speak to either the owner or someone responsible for your firm’s strategy in relation to overseas business?

Good morning/afternoon, my name is ... and I am calling on behalf of OMB Research, an independent market research agency. We have been commissioned by UK Trade & Investment and the Department for Business, Enterprise & Regulatory Reform (BERR) to conduct a survey of businesses on the topic of doing business overseas.

IF NECESSARY We are interested in talking to firms involved in any form of overseas business activity, including exporters, firms selling overseas via agents or distributors and firms who have operations overseas (such as factories or other offices).

INTERVIEWER NOTE - YOU MAY TAKE REFERRALS TO ANOTHER SITE WITHIN THE UK.

INTERVIEWER NOTE – IF FIRM IS NOT CURRENTLY DOING BUSINESS OVERSEAS, BUT PLANNING DOING SO WITHIN THE NEXT YEAR CONTINUE WITH THE INTERVIEW ON THIS BASIS

This research will cover areas such as your current overseas business activities, covering the way you go about doing business overseas and any issues you may have faced. It will take around 15-20 minutes, depending on your answers. It doesn’t matter how much or how little overseas business you do – we’re interested in speaking to a range of firms about their experiences.

AS NECESSARY UKTI is responsible for helping UK firms do business overseas. They want to find out more about how firms are going about overseas business and any difficulties they have. This will help UKTI develop the type of help they offer to UK firms.

AS NECESSARY We are able to offer all businesses taking part in this research an electronic link to a summary report of the research findings (which will be available late 2008)

Is it convenient to speak to you now or would you prefer to make an appointment for another time? ADD IF NECESSARY

- The research is being conducted under the Code of Practice of the Market Research Society, which means that all of the answers you give are strictly confidential and anonymous. Participation in this survey is voluntary.

- The responses of all organisations taking part will be combined into a statistical report

- Your organisation was selected at random from a list of UK businesses held by a commercial list broker

- If you wish to check that OMB Research is a bona fide market research agency, you can contact the Market Research Society on 0500 396999, or call James Murray at OMB Research on 01622 790900 or Heather Booth di Giovanni at UK Trade & Investment on 020 7215 4989.

OFFER FAX REASSURANCE IF NECESSARY

ASK ALL S1 – Can I confirm that you are one of the people best qualified to talk about your company’s overseas business activity?

INTERVIEWER NOTE: IF KNOW ALREADY THAT YOU ARE SPEAKING TO THE CORRECT PERSON THEN CODE YES AUTOMATICALLY

REFERRALS CAN BE TAKEN TO ANY SITE WHEN THE CONTACT FEELS THAT THERE IS SOMEONE WITHIN THE COMPANY BETTER PLACED TO ANSWER QUESTIONS ON THE TOPIC AREAS OUTLINED

Yes ........................................................................................................1 No – take referral and being transferred.................................2 No – take referral and arrange call back .........................3 No – refused referral.................................................................4 ASK ALL S2a – Which of the following overseas business activities has your firm been involved in, over the last 5 years? READ OUT – MULTICODE ALLOWED – DO NOT RANDOMISE

Selling directly to businesses or individuals abroad .................. 1 Selling to businesses or individuals abroad through agents or distributors ................................................................................. 2 Licensing or franchising overseas, or other contractual arrangements (including joint ventures) ............................................................ 3 Operating your own overseas site or office ............................... 4 (None of these) .............................................................................. 5 (Don’t know) .............................................................................. 6 – CLOSE

IF NONE AT S2a (CODE 5) S2b – Are you seriously considering starting to conduct overseas business via any of these routes in the NEXT YEAR?

Yes ............................................................................................ 1 No .............................................................................................. 2 - CLOSE (Don’t know) .............................................................................. 3 - CLOSE

IF YES AT S2b S2c - Which of the following overseas business activities are you planning to become involved in, in the next year? READ OUT – MULTICODE ALLOWED – DO NOT RANDOMISE

Selling directly to businesses or individuals abroad .................. 1 Selling to businesses or individuals abroad through agents or distributors ................................................................................. 2 Licensing or franchising overseas, or other contractual arrangements (including joint ventures) ............................................................ 3 Operating your own overseas site or office ............................... 4 (None of these) .............................................................................. 5 - CLOSE (Don’t know) .............................................................................. 6 – CLOSE

S3 – DELETED IF CODE 3 AT S2a OR S2c

S4a – \<IF CODES 1, 2 OR 4 ALSO MENTIONED AT S2A OR S2C You mentioned licensing or franchising overseas, or other contractual arrangements, but > < IF CODE 3 AT S2a is this IF CODE 3 AT S2c will this be > licensing, franchising or some other partnership or joint venture arrangement? MULTICODE ALLOWED

INTERVIEWER NOTE: IF RESPONDENT HAS ALREADY PROVIDED THIS INFORMATION DO NOT ASK QUESTION AND CODE AS APPROPRIATE

INTERVIEWER NOTE: IF IN DOUBT, RESPONDENT SHOULD SELECT THE MOST APPROPRIATE OPTION

Licensing ................................................................. 1 Franchising ............................................................. 2 Other partnership or joint venture arrangement ............ 3 (Don't know) ............................................................ 4 - CLOSE IF ONLY CODE 3 AT S2a/S2c ((S2a=3 & S2a=Not 1, 2 OR 4) OR (S2c=3 & S2c=Not 1, 2 or 4))

IF CODE 3 AT S4a

S4b – Would you say that the MAIN purpose of this partnership or joint venture < IF CODE 3 AT S2a is IF CODE 3 AT S2c will be > …? READ OUT – MULTICODE

Manufacturing ......................................................... 1 Assembly ................................................................. 2 Call centre ............................................................... 3 Distribution/sales office ........................................... 4 After-sales office ..................................................... 5 Service delivery ....................................................... 6 Research, product or process development .................. 7 (Something else (SPECIFY)) ..................................... 95 (Don't know) ............................................................ 97

S5a – DELETED

IF CODE 4 AT S2a

S5b – \<IF CODES 1, 2 OR 3 ALSO MENTIONED AT S2A You mentioned operating your own overseas office or site. > How many overseas sites do you have? READ OUT

One ................................................................. 1 2-5 ................................................................. 2 6-10 .............................................................. 3 11-20 ............................................................ 4 21-50 ............................................................ 5 More than 50 .................................................. 6 (Don't know) .................................................... 7 (Refused) ....................................................... 8 IF CODE 1 AT S5b OR CODE 4 AT S2c S5c – < IF CODE 4 AT S2c AND CODES 1, 2 OR 3 ALSO MENTIONED AT S2c You mentioned operating your own overseas office or site. > Would you say that the MAIN purpose of this site < IF CODE 1 AT S5b is IF CODE 4 AT S2c will be > ...? READ OUT – SINGLE CODE

IF CODES 2-8 AT S5b S5c – Thinking just about the last overseas site that you established, what is the MAIN purpose of this site? Is it...? READ OUT – SINGLE CODE

Manufacturing.................................................. 1 Assembly .......................................................... 2 Call centre .......................................................... 3 Distribution/sales office...................................... 4 After-sales office ............................................... 5 Service delivery ............................................... 6 Research, product or process development.... 7 (Don't know/None of these)................................. 97 – CLOSE IF ONLY CODE 4 AT S2a/S2c ((S2a=4 & S2a=Not 1, 2 OR 3) OR (S2c=4 & S2c=Not 1, 2 or 3))

S5d – DELETED S5e – DELETED

ASK ALL S6a – And can I just check, < IF CODES 1-4 AT S2a AND CODE 1 OR 2 AT S4b AND (CODE 1 OR 2 AT S5c) other than through the partnership or joint venture and the production site that we've already spoken about / IF CODES 1-4 AT S2a AND CODE 1 OR 2 AT S4b (& NOT CODE 1 OR 2 AT S5c) other than through the partnership or joint venture that we've already spoken about / IF CODES 1-4 AT S2a AND CODE 1 OR 2 AT S5c (& NOT CODE 1 OR 2 AT S4b) other than through the production site that we've already spoken about > have you IMPORTED any goods or services over the last 5 years?

AS NECESSARY By importing I mean the buying in of goods or services from overseas suppliers.

Yes ........................................................................................................ 1 No ........................................................................................................ 2 (Don't know) .................................................................................... 3

IF CODE 1 (YES) AT S6a S6b – Do you import...? READ OUT

Direct from an overseas supplier ................................................. 1 Or, through a UK-based intermediary ........................................ 2 Or, both......................................................................................... 3 (Don't know) .................................................................................. 4

IF CODE 1 AT S6a & NOT CODE 4 AT S2a From now on, when I'm asking questions about your overseas business activity please DO NOT include importing. ASK ALL S7 – And can I just ask, how long ago was your business established? READ OUT – CLARIFY AS NECESSARY – THIS MEANS WHEN THE BUSINESS STARTED TRADING AS NECESSARY – THIS MEANS THE BUSINESS IN ITS CURRENT FORM AS NECESSARY – IF THE BUSINESS IS A SUBSIDIARY THIS REFERS TO THE SUBSIDIARY IN WHICH YOU WORK

Within the last year ...........................................................1 Over 1, up to 2 years ago ..................................................2 Over 2, up to 3 years ago ....................................................3 Over 3, up to 4 years ago ....................................................4 Over 4, up to 5 years ago ....................................................5 Over 5, up to 10 years ago ..................................................6 Over 10, up to 20 years ago ...............................................7 Over 20 years ago .............................................................8 (Not yet trading) ................................................................9 (Don’t know) .....................................................................10 (Refused) ..........................................................................11

ASK IF ESTABLISHED 1-2 YEARS (CODES 1-2 AT S7) S7b – Can I just check, has your business actually started trading yet?

Yes ...................................................................................1 No ....................................................................................2 (Don’t know) .....................................................................3

ASK ALL S8 – And what is the main activity of the business? OPEN ENDED QUESTION – PROBE FULLY FOR INDUSTRY TYPE - IF MANUFACTURING WHAT TYPE OF MANUFACTURING, IF FINANCIAL SERVICES WHAT KIND AND SO FORTH

A – Agriculture, hunting & forestry ........................................1 B – Fishing ...........................................................................2 C – Mining & quarrying .......................................................3 D – Manufacturing .............................................................4 E – Electricity, gas and water supply ....................................5 F – Construction ..................................................................6 G – Retail, wholesale & repair of motor vehicles ....................7 H – Hotels and catering .......................................................8 I - Transport, storage and communication ............................9 J - Financial intermediation (Finance) .................................10 K - Real estate, renting & business activities .......................11 L - Public administration and defence .................................12 M – Education .....................................................................13 N - Health and social work ..................................................14 O - Other community, social & personal service activities ....15 Other ..................................................................................96 (Don’t know) .....................................................................97 (Refused) ..........................................................................98

CATI TO INSERT TIME MARKER SECTION A – OVERSEAS BUSINESS ACTIVITY

ASK IF CODES 1-4 AT S2a A3 – As a company would you say you are...? READ OUT – SINGLE CODE

Very experienced in overseas markets.................1 Quite experienced.............................................2 Not very experienced.......................................3 Or not at all experienced in overseas markets ....4 (Don’t know) ....................................................5 (Refused) .......................................................6

ASK IF CODES 1-4 AT S2a A4 – And how long ago did your company start conducting business overseas? READ OUT AS NECESSARY – CATI TO ONLY SHOW FEASIBLE CODES BASED ON ANSWER TO S7

Within the last year .................................................1 Over 1, up to 2 years ago .......................................2 Over 2, up to 3 years ago .......................................3 Over 3, up to 4 years ago .......................................4 Over 4, up to 5 years ago .......................................5 Over 5, up to 10 years ago .....................................6 Over 10, up to 20 years ago ...................................7 Over 20 years ago ................................................8 (Have not yet started doing business overseas) ....9 (Don’t know) .....................................................10 (Refused) .......................................................11

A1a - DELETED

ASK IF CODES 1-4 AT S2a A1b – How many overseas countries have you done business in over the last 5 years, in any form < IF IMPORTER (CODE 1 AT S6a) (although please DO NOT include countries that you have only imported from)? READ OUT

NO CODE 1 ALLOWED ........................................1 One.................................................................2 2-5 .................................................................3 6-10 ..............................................................4 11-20 ............................................................5 21-50 ............................................................6 More than 50 ..................................................7 (Don’t know) ...................................................8 (Refused) .....................................................9 IF CODE 2 AT A1b A2 – Which country is this? WRITE IN

Write in..............................................................................

IF ONLY ACTIVITY IS A MANUFACTURING/ASSEMBLY/CALL CENTRE OVERSEAS SITE/JV (CODES 3-4 AT S2a & (CODES 1, 2 OR 3 AT S5c OR CODES 1, 2 OR 3 AT S4b) & NOT CODE 1 OR 2 AT S2a & NOT CODES 1-2 AT S4a)) A5a – Can I just check, have you made any sales at all to customers in overseas markets in the last year?

Yes ..................................................................................1 No.....................................................................................2 (Don’t know) .....................................................................3

ASK IF CODES 1-4 AT S2a EXCEPT CODES 2-3 (NO/DON’T KNOW) AT A5a OR NOT YET TRADING (CODE 9 AT S7 OR CODE 2 AT S7b) A5b – In the last financial year, approximately what percentage of your turnover was accounted for by overseas sales? RECORD PERCENTAGE IF CODE 3 AT S2a Please include any fees received from overseas companies or overseas licensing deals.

Write in (%) (Don’t know) (Refused) CATI TO CHECK NUMBER IS BETWEEN 0 AND 100

IF DON’T KNOW AT A5b A5c – If you had to estimate this percentage, into which of the following bands would you put your business? READ OUT

Up to 5% .................................................................1 6 - 10% .................................................................2 11 - 15% .................................................................3 16 – 25% .................................................................4 26 – 50% .................................................................5 51 – 75% .................................................................6 More than 75% .......................................................7 (Don’t know) .............................................................8 (Refused) ...............................................................9

CATI TO INSERT TIME MARKER SECTION B – SELECTION OF FOCUS OF INTERVIEW (MODE & MARKET)

B1 – CATI TO SELECT MODE AT RANDOM, ALLOCATING TO ONE OF THE FOLLOWING ‘MODE GROUPS’ – SINGLE CODE

M1 - Selling direct (CODE 1 AT S2a OR S2c) ........................................... 1 M2 - Selling through agents/distributors (CODE 2 AT S2a OR S2c) ....... 2 M3 – Licensing (CODE 1 AT S4a) .......................................................... 3 M4 – Franchising (CODE 2 AT S4a) ..................................................... 4 M5 – Other partnerships/JVs (CODE 3 AT S4a) ................................. 5 M6 – Production site (CODE 1 OR 2 AT S5c) ..................................... 6 M7 – Call centre (CODE 3 AT S5c) ..................................................... 7 M8 – Sales/service site (CODES 4, 5 OR 6 AT S5c) ............................ 8 M9 – R&D site (CODE 7 AT S5c) ....................................................... 9

TEXT SUBSTITUTIONS FOR USE THROUGHOUT

VARIATION 1

- M1 – selling direct to overseas customers
- M2 – selling through agents or distributors
- M3 – overseas licensing
- M4 – overseas franchising
- M5 – overseas partnerships or joint ventures
- M6 – operating an overseas production facility
- M7 – operating an overseas call centre
- M8 – operating an overseas sales or service delivery site
- M9 – operating an overseas research & development site

VARIATION 2

- M1 - sold direct to overseas customers
- M2 - sold through agents or distributors
- M3 - used licensing agreements
- M4 - operated franchising agreements
- M5 - established overseas partnerships or joint ventures
- M6 - operated an overseas production facility
- M7 - operated an overseas call centre
- M8 - operated an overseas sales or service delivery site
- M9 - operated an overseas research & development site

VARIATION 3

- M1 – selling through agents or distributors or operating your own overseas site

- M2 – selling direct to overseas customers or operating your own overseas site

- M3 – selling direct to overseas customers or operating your own overseas site

- M4 – selling direct to overseas customers or operating your own overseas site

- M5 – selling direct to overseas customers or operating your own overseas site

- M6 – setting up a joint venture or partnership with an overseas company

- M7 – setting up a joint venture or partnership with an overseas company

- M8 – selling through agents or distributors or setting up a joint venture or partnership with an overseas company

- M9 – setting up a joint venture or partnership with an overseas company VARIATION 4

- M1 - sell direct to overseas customers

- M2 - sell through agents or distributors

- M3 – use licensing agreements

- M4 – operate franchising agreements

- M5 – establish overseas partnerships or joint ventures

- M6 – operate an overseas production facility

- M7 – operate an overseas call centre

- M8 – operate an overseas site

- M9 – operate an overseas research & development site

IF QUALIFYING FOR MORE THAN ONE OF M1-M9 For the rest of this interview I'd like you to focus just on < IF CODES 1-4 AT S2a your experiences of IF CODE 1 AT S2b your plans in relation to >> VARIATION 1 >

IF CODES 1-4 AT S2a AND SELECTED AS M1 & QUALIFYING FOR MORE THAN ONE OF M1-M9

A6a – Thinking specifically now about selling directly to businesses or individuals based abroad, how experienced would you say you are in this form of overseas business? Would you say that you are...? READ OUT – SINGLE CODE

Very experienced at selling directly to customers overseas................. 1 Quite experienced ................................................................................. 2 Not very experienced............................................................................. 3 Or not at all experienced at selling directly to customers overseas...... 4 (Don't know) .......................................................................................... 5 (Refused)............................................................................................... 6

IF CODES 1-4 AT S2a AND SELECTED AS M2 & QUALIFYING FOR MORE THAN ONE OF M1-M9

A6b – Thinking specifically now about selling through agents, distributors or other partners, how experienced would you say you are in this form of overseas business? Would you say that you are...? READ OUT – SINGLE CODE

Very experienced in selling through agents or distributors.............. 1 Quite experienced ................................................................................. 2 Not very experienced............................................................................. 3 Or not at all experienced in selling through agents or distributors...... 4 (Don't know) .......................................................................................... 5 (Refused)............................................................................................... 6 IF CODES 1-4 AT S2a AND SELECTED AS M3, M4 OR M5 & QUALIFYING FOR MORE THAN ONE OF M1-M9

A6c – Thinking specifically now about < IF M3 licensing IF M4 franchising IF M5 partnerships and other joint venture arrangements >, how experienced would you say you are in this form of overseas business? Would you say that you are...? READ OUT – SINGLE CODE

Very experienced at overseas < IF M3 licensing, IF M4 franchising, IF M5 partnerships and other joint venture arrangements >............................ 1 Quite experienced ................................................................................. 2 Not very experienced............................................................................. 3 Or not at all experienced at overseas < IF M3 licensing, IF M4 franchising, IF M5 partnerships and other joint venture arrangements >................. 4 (Don't know) .......................................................................................... 5 (Refused)............................................................................................... 6

IF CODES 1-4 AT S2a AND SELECTED AS M6, M7, M8 OR M9 & QUALIFYING FOR MORE THAN ONE OF M1-M9

A6d – Thinking specifically now about operating an overseas site, how experienced would you say you are in this form of overseas business? Would you say that you are...? READ OUT – SINGLE CODE

Very experienced at operating overseas sites....................................... 1 Quite experienced ................................................................................. 2 Not very experienced............................................................................. 3 Or not at all experienced at operating overseas sites ........................... 4 (Don't know) .......................................................................................... 5 (Refused)............................................................................................... 6

IF CODE 1 AT S2b

B2c – Is it just the one country that you're thinking about < VARIATION 1 > in over the next year, or is it more than one?

Just one country ..............................................................1 More than one .................................................................2

B2a – DELETED

IF (CODES 1-4 AT S2a & QUALIFYING FOR MORE THAN ONE OF M1-M9 AND NOT CODE 2 AT A1b) OR IF CODE 2 AT B2c

B2b – How many overseas countries < IF CODES 1-4 AT S2a have you adopted this approach in, in the last 5 years / IF CODE 2 AT B2c are you considering using this approach in >? READ OUT

NO CODE 1 ALLOWED ...................................................1 One.................................................................2 2-5 .................................................................3 6-10 ...............................................................4 11-20 ...............................................................5 21-50 ...............................................................6 More than 50 ..........................................................7 (Don't know) .............................................................8 (Refused)..............................................................9

IF CODE 2 AT B2b OR CODE 1 AT B2c

B3 – Which country is this? WRITE IN Write in..................................................................

IF MORE THAN ONE MARKET (B2b CODES 3-9 OR (B2b NOT ASKED & A1b CODES 3-9)) B4 – < IF B2b CODES 3-9 Which ONE of these countries IF B2b NOT ASKED & A1b CODES 3-9 Which overseas country > would you say < IF CODES 1-4 AT S2a has presented / IF CODE 1 AT S2b is likely to present > you with the greatest challenges < IF QUALIFYING FOR MORE THAN ONE OF M1-M9 in relation to < VARIATION 1 >> < IF CODES 1-4 AT S2a in the last 5 years >? WRITE IN ONE MARKET

Write in .................................................................. (Non/Don't know)

IF NONE/DON'T KNOW AT B4 B5 – < IF B2b CODES 3-9 Which ONE of these countries IF B2b NOT ASKED & A1b CODES 3-9 Which overseas country > < IF CODES 1-4 AT S2a have you started / IF CODE 1 AT S2b are you likely to start > doing business in < IF QUALIFYING FOR MORE THAN ONE OF M1-M9 via < VARIATION 1 >> < IF CODES 1-4 AT S2a most recently / IF CODE 1 AT S2b first >? WRITE IN ONE MARKET – IF NOT SURE ASK RESPONDENT TO PROVIDE BEST GUESS

Write in ..................................................................

CATI TO ALLOCATE <MARKET> AS FOLLOWS:

• FROM B4 IF MORE THAN ONE MARKET (B2b CODES 3-9 OR (B2b NOT ASKED & A1b CODES 3-9)) AND MARKET PROVIDED AT B4 • FROM B5 IF MORE THAN ONE MARKET (B2b CODES 3-9 OR (B2b NOT ASKED & A1b CODES 3-9)) AND NONE/DON'T KNOW AT B4 AND MARKET PROVIDED AT B5 • FROM B3 IF B2b = 2 OR B2c = 1 • FROM A2 IF A1b = 2

READ OUT FOR ALL I'd like to ask you some questions now < IF QUALIFYING FOR MORE THAN ONE OF M1- M9 just > about your < IF CODES 1-4 AT S2a experience of / IF CODE 1 AT S2b plans in relation to > < VARIATION 1 > in <MARKET>.

INTERVIEWER NOTE: IF RESPONDENT INDICATES THAT THEY DO NOT \<IF CODE 1 AT S2b PLAN TO > \<VARIATION 4> IN <MARKET> THEN GO BACK TO START, GO OVER ANSWERS TO EARLIER QUESTIONS, WORK OUT WHAT IS WRONG & CHANGE AS NECESSARY

CATI TO INSERT TIME MARKER SECTION C – DRIVERS OF MARKET

IF CODES 1-4 AT S2a & (QUALIFYING FOR MORE THAN ONE OF M1-M9 OR (A1b = CODES 3-9))

C1a – How long have you < IF QUALIFYING FOR MORE THAN ONE OF M1-M9 < VARIATION 2 > / IF QUALIFYING FOR JUST ONE OF M1-M9 been doing business > in < MARKET >?

READ OUT AS NECESSARY – CATI TO ONLY SHOW FEASIBLE CODES BASED ON ANSWER TO A4

Less than a year ...............................................................1 Over 1, up to 2 years ........................................................2 Over 2, up to 3 years ........................................................3 Over 3, up to 4 years ........................................................4 Over 4, up to 5 years ........................................................5 Over 5, up to 10 years ......................................................6 Over 10, up to 20 years ....................................................7 Over 20 years ...................................................................8 (Have not yet started) .......................................................9 (Don’t know) .....................................................................10 (Refused)..........................................................................11

IF M6, 7 OR 9

C1b – Can I just check, < IF CODES 1-4 AT S2a does your IF CODE 1 AT S2b would this > < IF M6 production site IF M7 call centre IF M9 research & development site > in < MARKET > sell any products or services directly to any customers in < MARKET >?

READ OUT – SINGLE CODE

Yes ............................................................................................ 1 No.............................................................................................. 2 (Don’t know) .............................................................................. 3

IF M1-5 OR M8 OR YES (CODE 1) AT C1b

C1c - < IF CODES 1-4 AT S2a Have you had to IF CODE 1 AT S2b Do you expect to need to > modify any of your products or services for customers in < MARKET >?

Yes ...................................................................................1 No.....................................................................................2 (Don’t know) .....................................................................3

IF YES (CODE 1) AT C1c

C1d – < IF CODES 1-4 AT S2a Was this IF CODE 1 AT S2b Are you expecting this to be > ...? READ OUT - MULTICODE

Something cosmetic such as packaging or translation.....1 Or something more fundamental ......................................2 (None of these).....................................................................3 (Don’t know) ......................................................................4 IF (M5 & CODES 1-2 AT S4b) OR M6 C1e – Can I just check, IF CODES 1-4 AT S2a do you IF CODE 1 AT S2b would you > import into the UK at all < IF M5 through this partnership or joint venture IF M6 from this production site >? READ OUT – SINGLE CODE

Yes ...................................................................................1 No .....................................................................................2 (Don’t know) .................................................................3

C2 – DELETED

C3 – MOVED

ASK ALL C4 - I’m going to read out some of the individual circumstances that other firms have found themselves in when looking at doing business in specific overseas locations and I’d like you to tell me the extent to which each one applied to you when you were FIRST CONSIDERING < IF M5-9 < VARIATION 1 > in > < MARKET >.

Please give me a score of 1 to 5, where 5 means that it is completely applicable and 1 means that it is not at all applicable. So firstly...READ OUT - RANDOMISE

(a) We had received an approach from someone in < MARKET > (b) It had been suggested to us by someone external to the company that < MARKET > might be an opportunity for us (c) There was someone within the company who already had experience of < MARKET > (d) We had been considering a number of countries at the time, and decided to focus on < MARKET > (e) We had identified internally that < MARKET > offered a potential opportunity for us

ADD TO SCREEN FOR EACH To what extent did that apply to you when you were FIRST CONSIDERING < IF M5-9 < VARIATION 1 > in > < MARKET >?

1 – Not at all applicable ....................................................1 2 .......................................................................................2 3 .......................................................................................3 4 .......................................................................................4 5 – Completely applicable .............................................5 (Don’t know) .................................................................6

ASK ALL C3 – Were there any other major reasons for looking at this market that we haven’t already covered? If so, what were these reasons?

............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................

4144 (Internationalisation) – QUS – F1 – 07/11/2008 - W:RO, C:J Analysis

- Independent analysis

  - Proportion of firms providing a rating of ‘4’ or ‘5’ at C4d or C4e

- Networks & serendipity

  - Proportion of firms providing a rating of ‘4’ or ‘5’ at C4a, C4b or C4c

- Solely reactive

  - Proportion of firms providing a rating of ‘4’ or ‘5’ at C4a but not scoring above ‘2’ for C4c-e

C5a – DELETED C5b – DELETED C6 – DELETED C7 – DELETED

ASK ALL C8 – Thinking now about your < IF CODES 1-4 AT S2a experiences so far of IF CODE 1 AT S2b your plans for > doing business in < MARKET > < IF QUALIFYING FOR MORE THAN ONE OF M1-M9 via < VARIATION 1 >, how easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > …? READ OUT - RANDOMISE

(a) (IF M1,5 OR 8 OR (M6, 7 OR 9 & C1b IS YES)) How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to find customers in < MARKET >

(b) IF M2-5 How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to find a suitable partner

(c) How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to negotiate the legal and regulatory framework or standards in < MARKET >

(d) How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to negotiate the culture and language in < MARKET >

(e) How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to protect your Intellectual Property

(f) How easy or difficult has it been for you to deal with the logistics of doing business in < MARKET >

(g) IF M6-9 How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to recruit and retain suitable staff

(h) IF YES AT C1c How easy or difficult < IF CODES 1-4 AT S2a has it been IF CODE 1 AT S2b do you expect it to be > for you to make any modifications to your products or services so that they are suitable for customers in < MARKET > ADD TO EACH SCREEN Would you say that it < IF CODES 1-4 AT S2a has been IF CODE 1 AT S2b will be > ...? READ OUT SCALE AS NECESSARY

Very easy.................................................................1 Fairly easy ..............................................................2 Average .....................................................................3 Fairly difficult ..........................................................4 Or, very difficult .......................................................5 (Not relevant) ............................................................6 (Don't know) ............................................................7

ASK IF AT LEAST ONE OF C4b-e = 3, 4 OR 5 OR C4a = 1, 2, 3 OR 6 C8 – Still thinking about < MARKET >, from your perspective would you say that...? READ OUT - RANDOMISE

(i) (IF M1-5 OR M8 OR (M6, 7 OR 9 & C1b IS YES)) & AT LEAST ONE OF C4b-e = 3, 4 OR 5 OR C4a = 1, 2, 3 OR 6) The potential level of demand for your products or services in < MARKET > is...

(j) IF M6-9 & AT LEAST ONE OF C4b-e = 3, 4 OR 5 OR C4a = 1, 2, 3 OR 6) In comparison with the UK, the cost of resources (and by that I mean things like wage costs and the cost of raw materials) in < MARKET > is...

Very low.................................................................1 Fairly low ..............................................................2 Average .....................................................................3 Fairly high ............................................................4 Or, very high ..........................................................5 (Not relevant) ............................................................6 (Don't know) ............................................................7

ASK ALL C8 – And how do you view the RISK of doing business in < MARKET > < IF M2-7 OR M9 via < VARIATION 1 >>, in terms of the following? READ OUT - RANDOMISE

(k) Ensuring you get paid and enforcing contracts? (l) IF AT LEAST ONE OF C4b-e = 3, 4 OR 5 OR C4a = 1, 2, 3 OR 6) Being able to guarantee the quality of the goods or service you provide? (m) IF AT LEAST ONE OF C4b-e = 3, 4 OR 5 OR C4a = 1, 2, 3 OR 6) The financial risk in terms of the investment required and being able to ensure a return on that investment?

ADD TO EACH SCREEN Would you say that the risk in < MARKET > is...? READ OUT SCALE AS NECESSARY

A very low risk ..........................................................1 A fairly low risk ........................................................2 An average risk ..........................................................3 A fairly high risk .......................................................4 Or, a very high risk ....................................................5 (Not relevant) ............................................................6 (Don't know) ............................................................7

C9 – DELETED CATI TO INSERT TIME MARKER I'd now like to move on to talking specifically about your choice to plans when doing business in.

ASK ALL D1 – So why did you decide to on this occasion are you thinking about, rather than use an alternative approach such as? What were the key factors in your decision? PROBE FULLY

IF M1 D2 – I'm now going to read out some reasons that other firms have given for choosing and I'd like you to tell me the extent to which each one applied to you when you decided to consider adopting this approach in.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to?

(a) DELETED (b) We were advised to approach by selling direct to customers (c) We always approach overseas markets by selling direct to customers (d) It was the best approach given the level of demand in (e) We didn't want to reduce our profit margins by paying a 'middle man' (f) It was the best way to protect our intellectual property (g) It was the best way to ensure quality or customer service (h) It was the best way to build up strong working relationships with our overseas customers

1 – Did not apply at all 2 3 4 5 – Completely applicable (Don't know) IF M2-5 D4 – I’m now going to read out some reasons that other firms have given for choosing to < VARIATION 4 > and I’d like you to tell me the extent to which each one applied to you when you < IF CODES 1-4 AT S2a decided to adopt IF CODE 1 AT S2b considered adopting > this approach in < MARKET >.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to < VARIATION 4 >?

(a) Our customers in < MARKET > require a local presence (b) DELETED (c) We were advised to approach < MARKET > in this way (d) IF S2a=1-4 We always approach overseas markets by < VARIATION 1 > (e) It was the best approach given the level of demand in < MARKET > (f) Our overseas partner was better placed than we were to identify potential customers in < MARKET > (g) It reduced the financial risk of doing business in < MARKET > (h) It was the best way to access people who understand the market in < MARKET > (i) It was the best way to protect our intellectual property (j) IF M4 It was the best way to ensure quality or customer service (k) DELETED (l) It was the easiest way for us to cope with the practicalities of the language and culture in < MARKET > (m) It was the easiest way for us to deal with the practicalities of doing business in < MARKET > in terms of regulations, transport, logistics, getting paid, etc

1 – Did not apply at all ......................................................1 2 ....................................................................................2 3 ....................................................................................3 4 ....................................................................................4 5 – Completely applicable .............................................5 (Don’t know) .................................................................6 D6 – I’m now going to read out some reasons that other firms have given for choosing to < VARIATION 4 > and I’d like you to tell me the extent to which each one applied to you when you < IF CODES 1-4 AT S2a decided to adopt IF CODE 1 AT S2b considered adopting > this approach in <MARKET>.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to < VARIATION 4 >?

(a) Our customers require us to have a local production facility in < MARKET > (b) Our competitors have production sites in < MARKET >, so we decided to do the same (c) DELETED (d) IF YES AT C1b It was the best approach given the level of demand in < MARKET > (e) It was the best way to access people with the specialist knowledge and skills we required (f) It enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials (g) IF YES AT C1b It was the best way to build up strong working relationships with our customers in < MARKET > (h) It enabled us to offer quicker response times or reduced shipments costs (i) DELETED (j) It enabled us to overcome import restrictions, avoid import duties or gain other tax advantages (k) DELETED

1 – Did not apply at all ......................................................1 2 ....................................................................................2 3 ....................................................................................3 4 ....................................................................................4 5 – Completely applicable ...............................................5 (Don’t know) ....................................................................6 I'm now going to read out some reasons that other firms have given for choosing to adopt this approach in <MARKET>.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to adopt this approach in <MARKET>?

(a) IF YES AT C1b Our customers in <MARKET> require us to have a local presence (b) Our competitors have call centres in <MARKET>, so we decided to do the same (c) DELETED (d) IF YES AT C1b It was the best approach given the level of demand in <MARKET> (e) It was the best way to access people with the specialist knowledge and skills we required (f) It enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials (g) DELETED (h) It enabled us to offer quicker response times for our customers (i) DELETED (j) It provides tax advantages (k) DELETED

1 – Did not apply at all ......................................................1 2 ....................................................................................2 3 ....................................................................................3 4 ....................................................................................4 5 – Completely applicable ...............................................5 (Don't know) ....................................................................6 I'm now going to read out some reasons that other firms have given for choosing to adopt this approach in <MARKET> and I'd like you to tell me the extent to which each one applied to you when you decided to adopt this approach in <MARKET>.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to adopt this approach in <MARKET>?

(a) Our customers in <MARKET> require a local presence (b) DELETED (c) We were advised to approach <MARKET> by setting up our own office (d) IF S2a=1-4 We always approach overseas markets in this way (e) It was the best approach given the level of demand in <MARKET> (f) It was the best way to access people with the specialist knowledge and skills we required (g) We didn’t want to reduce our profit margins by paying a ‘middle man’ (h) It was the best way to protect our intellectual property (i) It was the best way to ensure quality or customer service (j) It was the best way to build up strong working relationships with our overseas customers (k) DELETED

1 – Did not apply at all .................................................................1 2 ..........................................................................................2 3 ..........................................................................................3 4 ..........................................................................................4 5 – Completely applicable ......................................................5 (Don’t know) ........................................................................6 IF M9 D12 – I’m now going to read out some reasons that other firms have given for choosing to < VARIATION 4 > and I’d like you to tell me the extent to which each one applied to you when you < IF CODES 1-4 AT S2a decided to adopt IF CODE 1 AT S2b considered adopting > this approach in <MARKET>.

Please give me a score of 1 to 5, where 5 means it was completely applicable and 1 means that it did not apply at all.

So firstly... READ OUT – DO NOT ROTATE

AS NECESSARY Did this apply TO YOU when you decided to < VARIATION 4 >?

(a) IF YES AT C1b Our customers in < MARKET > require us to have a local research & development site (b) Our competitors have research & development sites in < MARKET >, so we decided to do the same (c) DELETED (d) It was the best way to access people with the specialist knowledge and skills we required (e) It enabled us to access cheaper resources, such as cheaper wages or cheaper raw materials (f) IF YES AT C1c It was the best way to get the necessary product development done for customers in < MARKET > (g) It enabled us to speed up the research and development process (h) It enabled us to overcome import restrictions, avoid import duties or gain other tax advantages (i) It meant that we could be close to an important centre of expertise in our industry

1 – Did not apply at all ......................................................1 2 ....................................................................................2 3 ....................................................................................3 4 ....................................................................................4 5 – Completely applicable .............................................5 (Don’t know) .................................................................6

CATI TO INSERT TIME MARKER Hypotheses

- ‘Customers’

  - Firms choose to operate their own sales site or establish a partnership because their customers require them to have a local presence (D4a, D10a)
  - Firms choose to set up a production/call centre/product development facility because their customers require it (D6a, D8a, D12a)

- ‘Competitors’

  - Firms choose to go down a certain route because they see their competitors doing the same (D6b, D8b, D12b)

- ‘Advice’

  - Firms choose a certain route on the advice of someone, probably external to the firm (but potentially a parent/group company) (D2b, D4c, D10c)

- ‘Habit’

  - Firms do things via a given route in one market, then apply the same model in subsequent overseas markets (D2c, D4d, D10d)

- ‘Level of Demand’

  - Firms will choose a specific mode as a result of either the current level of demand or the perceived level of demand. For example, firms may choose to sell direct because the demand is very low. However, if the demand is expected to be high they may choose to work with a partner of some description or even open their own site overseas. They could also choose to sell direct because the demand is expected to be high (i.e. high enough to justify investing in resource to deal with the business from the UK) (D2d, D4e, D6d, D8d, D10e)

- ‘Finding Buyers’

  - Firms will decide to work with a partner so that they can find overseas buyers for their product/service for them – i.e. the overseas firm takes care of marketing (D4f)

- ‘ROI/Risk’

  - Firms sell direct so as not to erode their profit margins (D2e, D10f)
  - Firms may decide to work with a partner so that they take on much of the risk of investing in marketing etc., minimising any losses if it doesn’t work out (D4g)

- ‘Human Resources (Capabilities)’

  - Firms will decide to work with a partner to access people with the right connections, who know the market, know how to do business there etc. (D4h)

- ‘Human Resources (Location)’

  - Firms will decide to produce goods/do product development overseas in order to access specialist resources in terms of skills and/or knowledge (D6e, D8e, D10l, D12d)

- ‘Cost of Resources’

  - Firms will set up operations overseas in order to access cheaper resources, probably cheaper labour costs but also potentially cheaper raw materials (D6f, D8f, D12e)

- ‘IP’

  - Firms will choose to sell direct/operate their own site in order to maintain control over their IP (D2f, D10g)
  - Firms will choose to work with a partner who they allow to use their IP under an agreed set of conditions in a market to avoid others in the market copying them or to achieve market entry within a given timeframe so that they can retain IP rights (D4i)

- ‘Quality’

  - Firms will choose to sell direct/franchise/operate their own site in order to maintain (at least some) control over the quality of their product/service (D2g, D4j, D10h) Hypotheses

- ‘Meeting Needs’

  - Firms will choose to sell direct/operate their own overseas site because they feel that they are best able to meet the needs of the customer this way through the building up of closer/stronger relationships (D2h, D10i)
  - Firms set up a production site with a view to selling to the market and feel that doing so will mean that they are better able to meet the needs of the customer through the building up of close/stronger relationships (D6g)
  - Firms set up a production facility so that they are geographically closer to their customers so that they are able to offer reduced response times and/or reduced shipment costs (D6h, D8h)

- ‘Product Development (ROI, Cost & Risk)’

  - Firms may set up a product development facility as an efficient way of doing product development work (because of access to resources, wage costs etc.) (D12f)

- ‘Product Development (Meeting Needs)’

  - Firms may set-up a product development facility that crosses time zones to allow for ‘24-hour’ product development (D12g)

- ‘Language & Culture’

  - Firms will decide to work with a partner in order to negotiate issues to do with language and the culture in an overseas market (D4l)

- ‘Business Framework (Capabilities)’

  - Firms will decide to work with a partner in order to negotiate issues to do with the practicalities of doing business in an overseas market, i.e. the business framework (D4m)

- Business Framework (ROI, Cost & Risk)’

  - Firms will decide to set up their own production facility/call centre/site/product development facility to overcome import restrictions or duties, or to gain tax advantages (D6j, D8j, D10j, D12h)

- ‘Location’

  - Firms set up a site in an overseas market to be close to important centres of expertise in their industry (e.g. India for cheap, skilled researchers or the UK for key frontline developments) (D12i) ASK ALL E1 – I’d now like you to think about the difficulties or problems that a firm IN A SIMILAR POSITION TO YOURSELF in terms of size, sector and structure might face doing business overseas.

I’m going to read out a list of possible issues and I’d like you tell me the extent to which a firm SIMILAR TO YOURSELF would encounter each one when trying to do business in < MARKET > by < VARIATION 1 >.

Please give me a score of 1 to 5 for the extent to which you feel that this is likely to be a difficulty, where 5 means it would be ‘extremely difficult’ and 1 means it would ‘not be a problem at all’.

So firstly, ... READ OUT - ROTATE LIST ALWAYS ASK STATEMENT H AFTER STATEMENT G ALWAYS ASK STATEMENTS B, C & D IN ORDER ON EACH OF THE E1 SCREENS ADD AFTER EACH STATEMENT AS NECESSARY Would that be difficult for other firms?

(a) Obtaining basic information about < IF M1 doing business IF M2-9 < VARIATION 1 >> in < MARKET > (b) Identifying who to make contact with in the first instance < IF M2-5 or finding a suitable partner > (c) Establishing an initial dialogue with prospective < IF M1, M5 OR M8 OR YES AT C1b customers or > business partners in < MARKET > (d) Building relationships with key influencers or decision-makers (e) DELETED (f) DELETED (g) Cultural differences outside of any language barriers (h) IF M1-5 Not having < IF M1 an IF M2-5 their own > office or site in < MARKET > (i) < IF M1-5 A bias or preference on the part of overseas customers for doing business with firms from < MARKET > / IF M6 A bias or preference on the part of UK customers for sourcing goods produced in the UK / IF M7 A bias or preference on the part of UK customers for using call centres based in the UK / IF M8 A bias or preference on the part of overseas customers for doing business with firms from < MARKET > / IF M9 A bias or preference on the part of UK customers for research and development being undertaken in the UK > (j) The costs associated with doing business in < MARKET > (k) Finding the necessary management time to devote to doing business in < MARKET > (l) DELETED (m) DELETED (n) Exchange rates and currency (o) DELETED (p) IF M6-9 Problems obtaining work permits or visas for staff to allow them to relocate to < MARKET > (q) DELETED SECTION F – AWARENESS & NEEDS

I’d now like to ask you some more questions about any sources of information or advice you are aware of that are available to help UK firms do business overseas.

F1 - DELETED

ASK ALL

F2 – Prior to this interview, had you heard of...? READ OUT – ROTATE STATEMENTS d-h (a, b & c TO ALWAYS BE ASKED FIRST)

(a) UK Trade & Investment or UKTI (b) The commercial services provided by British embassies and Consulates overseas (c) The International Trade Advisors based in Business Links or Regional Development Agencies (d) Passport to Export (e) IF YES AT F2a OR F2c The Export Marketing Research Scheme or EMRS (f) IF YES AT F2a OR F2c Export Communication Reviews or ECR (g) The Tradeshows Access Programme or TAP (h) The Overseas Market Information Service or OMIS

Yes .................................................................1 No .................................................................2 (Don’t know) ..................................................3

IF YES AT ANY OF F2a-h

F2i – Have you used any of these?

Yes .................................................................1 No .................................................................2 (Don’t know) ..................................................3 ASK ALL F2j – Prior to this interview, had you heard of Business Link?

Yes ...................................................................................1 No .....................................................................................2 (Don't know) ........................................................................3

F3 – DELETED

CATI TO INSERT TIME MARKER

SECTION G – EMERGING/FAST GROWING MARKETS

I’d now like you to think about the extent to which you see there being opportunities for YOUR FIRM in some of the world’s fast growing and emerging economies.

ASK ALL G1 – For each of these countries please could you tell me whether you see it as being a good opportunity for your firm over the next 2 years, a possible opportunity, or unlikely to provide you with an opportunity over this timeframe.

So firstly, ... ROTATE ORDER OF a-g, ALWAYS ASKING i,j & h LAST

(a) Russia (b) Turkey (c) South Africa (d) Saudi Arabia or the United Arab Emirates (e) Qatar (f) Brazil (g) Mexico (i) China (j) India (h) Other countries in Asia (not including Japan)

AS NECESSARY Would you say that < xxx > is ...?

A good opportunity for your firm ........................................... 1 A possible opportunity ......................................................... 2 Unlikely to provide an opportunity over the next 2 years........... 3 Or, are you already doing business there............................... 4 (Don't know) ........................................................................ 5

G2 – DELETED G3 – DELETED ASK ALL EXCEPT ‘NOT YET TRADING’ (CODE 9 AT S7 OR CODE 2 AT S7b) G4a – In your opinion, has your business been negatively affected by the apparent downturn in the US or UK markets over the last year? SINGLE CODE. IF YES, PROBE FOR US, UK OR BOTH.

Yes ...................................................................................1 No ....................................................................................4 (Don't know) .................................................................5

ASK IF YES (CODE 1) AT G4a G4b – And has this prompted you to devote more attention to any of the emerging or fast growing economies I've just mentioned?

AS NECESSARY For example China, India, Brazil or Russia

Yes ...................................................................................1 No ....................................................................................2 (Don't know) .................................................................3

CATI TO INSERT TIME MARKER I'd now like to ask you some questions about your business just to classify your answers for analysis purposes. You may of course skip any question you do not wish to answer.

**H1a - DELETED**

**ASK ALL**

**H1b – Can I just check, is the business UK or foreign-owned?**

- UK-owned........................................................................1
- Foreign-owned..................................................................2
- (Joint UK and foreign-owned)...........................................3
- (Don't know) .....................................................................4

**ASK ALL**

**H2a – How many people are currently employed by your business in the UK?**

**INTERVIEWER NOTE AS NECESSARY** Please include both full and part-time staff.

Write in number (0+):

- (Don't know) – PROMPT WITH RANGES
- (Refused)

**IF DON'T KNOW AT H2a**

**H2b – If you had to estimate, approximately how many people are employed by your business in the UK? READ OUT AS NECESSARY**

- No employees...................................................................1
- 1-4 ....................................................................................2
- 5-9 ....................................................................................3
- 10-19 ................................................................................4
- 20-49 ................................................................................5
- 50-99 ................................................................................6
- 100-199 ............................................................................7
- 200-249 ............................................................................8
- 250-499 ............................................................................9
- 500 or more ......................................................................10
- (Don't know) .....................................................................11
- (Refused)..........................................................................12

**ASK ALL EXCEPT CODES 1, 2, 3 & 9 AT S7 OR CODE 2 AT S7b**

**H2c – Compared to this time three years ago, would you say that the number of people employed by your company is now...? READ OUT**

- Higher ...............................................................................1
- Lower..................................................................................2
- Or, about the same as it was three years ago..................3
- (Don't know) .....................................................................4 IF HIGHER (CODE 1 AT H2c) & FIGURE GIVEN AT H2a H2d – How many people were employed by your business three years ago? READ OUT INTERVIEWER NOTE AS NECESSARY Please include both full and part-time staff.

Write in number (0+): (Don’t know) (Refused)

IF DON’T KNOW/REFUSED AT H2d OR (HIGHER (CODE 1 AT H2c) & NO FIGURE GIVEN AT H2a I.E. DON’T KNOW/REFUSED) H2e – Over the last three years would you say that the number of people employed by your company has...

READ OUT

Increased by more than 75%..................................................... 1 Increased by between 30-75% .................................................. 2 Or, increased by less than 30% compared to 3 years ago....... 3 (Don’t know) .............................................................................. 4

ASK ALL H3a –

IF NOT ESTABLISHED IN THE LAST YEAR (S7 NOT CODE 1 & NOT CODE 9 AND S7b NOT CODE 2) Can I ask, what is the current annual turnover of your business? IF ESTABLISHED IN LAST YEAR (CODES 1 OR 9 AT S7 OR CODE 2 AT S7b) What do you anticipate will be the turnover of your business in the first year of trading?

AS NECESSARY By this I mean your annual sales, income or receipts. AS NECESSARY Please give me the turnover for the UK part of your business, but include overseas sales made by the UK

Write in amount in £ (£0+): (Refused) (Don’t know) – PROMPT WITH RANGES

CATI TO VALIDATE AMOUNT ENTERED USING RANGES IN H3b – ON THESE CHECK QUESTIONS CAN IT ALL BE IN WORDS EG. LESS THAN ONE HUNDRED THOUSAND ETC

IF DON’T KNOW AT H3a H3b - If you had to estimate your total turnover, into which of the following bands would you put yourself? READ OUT AS NECESSARY

£0 .................................................................1 £100,000 or less .........................................................2 £100,001 - £500,000 ..................................................3 £500,001 - £2million ................................................4 £2million - £10million ..............................................5 £10million - £50million ...........................................6 More than £50million ..............................................7 (Don’t know) ..........................................................8 (Refused)..............................................................9

ASK ALL EXCEPT CODES 1, 2, 3 & 9 AT S7 OR CODE 2 AT S7b H3c – Compared to this time three years ago, would you say that your turnover is now...

? READ OUT Much higher.................................................................1 A bit higher ...............................................................2 Lower........................................................................3 Or, about the same as it was three years ago..............4 (Don't know)..............................................................5

H3d – DELETED H3e – DELETED

ASK ALL UNLESS ESTABLISHED IN LAST TWO YEARS (I.E. NOT 1-2 OR 9 AT S7 & NOT CODE 2 AT S7b)

H7a – Have you introduced any new products or services over the last three years?

Yes ..............................................................................1 No..................................................................................2 (Don't know)..................................................................3

ASK IF YES AT H7a

H7b - And are these new products or services... READ OUT - SINGLE CODE ADD AS NECESSARY: By completely new I mean that, to the best of your knowledge, they have not been introduced by anyone before you READ OUT – SINGLE CODE

Just new to your business..............................................1 New to your industry or sector.......................................2 Or, are they completely new to the world......................3 (Some are just new to the business and some are completely new)........4 (Don't know)..................................................................5

ASK ALL EXCEPT NO EMPLOYEES (0 AT H2A OR CODE 1 AT H2B) OR CODES 2, 3 OR 4 AT H7b

H4a – Approximately how many of your UK employees are engaged either wholly or partly in R&D activity? READ OUT AS NECESSARY

Zero ..............................................................................1 One..............................................................................2 2-4 ..............................................................................3 5-9 ..............................................................................4 10-19 .........................................................................5 20-49 .........................................................................6 50-99 .........................................................................7 100-199 ......................................................................8 200-249 ......................................................................9 250-499 .....................................................................10 500 or more ..................................................................11 (Don't know)..................................................................12 (Refused)......................................................................13 ASK IF H4a IS CODES 2-11 H4b – Can I just check, are any of these employees involved in activities that could be described as ‘the development of scientific or technical knowledge that is NOT commonly available’?

Yes ...................................................................................1 No.....................................................................................2 (Don't know) .....................................................................3

ASK ALL EXCEPT NO EMPLOYEES (0 AT H2A OR CODE 1 AT H2B) OR CODES 2, 3 OR 4 AT H7b OR CODE1 AT H4a H5 – And approximately how many of your UK employees are engaged either wholly or partly in new product or service development? READ OUT AS NECESSARY

Zero ..................................................................................1 One...................................................................................2 2-4 ....................................................................................3 5-9 ....................................................................................4 10-19 ..............................................................................5 20-49 ..............................................................................6 50-99 ..............................................................................7 100-199 ..........................................................................8 200-249 ..........................................................................9 250-499 ..........................................................................10 500 or more .....................................................................11 (Don't know) .....................................................................12 (Refused)..........................................................................13

ASK ALL EXCEPT CODES 2, 3 OR 4 AT H7b OR (CODE 1 AT H4b & CODES 3-11 AT H4a & CODES 3-11 AT H5) H6 – In the last year have you employed or commissioned anyone external to your business to conduct scientific or technical research, or any new product or service development activity for you?

Yes ...................................................................................1 No.....................................................................................2 (Don't know) .....................................................................3 Analysis

Innovative Firms

- ‘Innovative’ firms are those that...
  - Have more than one employee engaged in R&D activity (H4a) and more than one employee engaged in new product or service development (H5)
  - Or, have employed someone external to conduct new product or service development in the last year (H6)
  - Or, derive at least some turnover from products & services introduced in the last 3 years (H7a) except firms established in the last 2 years

Innovative Firms – Alternative (Tighter) Definition

- ‘Innovative’ firms (by the alternative measure) are those that...
  - Have more than one employee engaged in R&D activity (H4a) and more than one employee engaged in new product or service development (H5) and at least some R&D employees are engaged in the ‘development of scientific or technical knowledge that is not commonly available’ (H4b)
  - Or, have employed someone external to conduct new product or service development in the last year (H6)
  - Or, derive at least some turnover from products & services introduced in the last 3 years (H7a) except firms established in the last 2 years and these products & services are either ‘new to the world’ or ‘new to the industry/sector’ (H7b)

H8a – DELETED

ASK ALL H8b – Do you currently hold any patents or trademarks, either in the UK or overseas, for any of your products or services?

Yes .................................................................................. 1 No.....................................................................................2 (Don't know) .....................................................................3

ASK ALL H9a – Can I just check, do you have a current, written business plan?

Yes ...................................................................................1 No .................................................................................... 2 (Don't know) ....................................................................3 (Refused)..........................................................................4

H9b - DELETED ASK ALL EXCEPT ‘NOT YET TRADING’ (CODE 9 AT S7 OR CODE 2 AT S7b)

H10 – Thinking about your business as a whole, what growth objectives do you have for the business over the next FIVE years? Do you plan to…?

READ OUT

Remain the same ......................................................1 Become smaller ..........................................................2 Grow moderately .......................................................3 Grow substantially ....................................................4 (Don’t know) .............................................................5 (Refused) .................................................................6

H11 - DELETED H12 - DELETED

ASK ALL EXCEPT ‘NOT YET TRADING’ (CODE 9 AT S7 OR CODE 2 AT S7b)

H17 – Thinking now about your main competitors, are they UK-based companies or companies based overseas?

UK-based companies ..................................................1 Companies based overseas .........................................2 (Don’t have any competitors) .......................................3 (Both UK and overseas companies) ............................4 (Don’t know) .............................................................5

H13a - DELETED H13b – DELETED

ASK ALL

H14 – That’s almost the end of the interview, thank you very much for taking part. Would you be willing to take part in any future UK Trade & Investment or BERR research on this topic?

AS NECESSEARY BERR is the Department for Business, Enterprise & Regulatory Reform (formerly the DTI).

Yes .................................................................1 No .................................................................2 (Don’t know) ........................................................3

ASK ALL

H17a - We will be producing a summary report of the results from this survey. Would you like us to send you an electronic link to this summary report? READ OUT

ADD AS NECESSEARY The report will be available late 2008.

Yes .................................................................1 No .................................................................2 (Don’t know) ........................................................3 IF YES AT H15a H17b - Can I take your e-mail address? REASSURE RESPONDENT THAT THIS WILL NOT BE PASSED ON & ONLY USED TO MAIL A LINK TO THE REPORT

IF YES AT H15a BUT RESPONDENT DOESN'T HAVE AN EMAIL ADDRESS H17c – Can I confirm your postal address then and we will send you a letter containing the internet address for the electronic report? REASSURE RESPONDENT THAT THIS WILL NOT BE PASSED ON & ONLY USED TO MAIL A LINK TO THE REPORT

.................................................................................................................... .................................................................................................................... ....................................................................................................................

CATI TO INSERT TIME MARKER

ASK ALL H15 – Finally as proof of this interview please could I just confirm your business postcode? CATI TO DISPLAY POSTCODE IF AVAILABLE – AMEND IF MISSING OR INCORRECT

H16 – And may I take a note of your name? WRITE IN

STANDARD THANK & CLOSE

CATI TO INSERT TIME MARKER